Executive Summary / Key Takeaways

• Terex is strategically transforming into a more resilient industrial company, significantly diversifying its portfolio through the accretive acquisition of Environmental Solutions Group (ESG), which now forms a core part of the new Environmental Solutions (ES) segment alongside Terex Utilities.
• Despite facing near-term cyclical headwinds in its legacy Aerials and Materials Processing (MP) segments, reflected in lower Q1 2025 sales and operating profits, the company is leveraging operational discipline, cost reduction actions, and production adjustments to manage margins and expects sequential improvement.
• The ES segment demonstrated strong performance in Q1 2025 with significant sales growth and robust margins, driven by the ESG acquisition and record throughput in refuse collection vehicles, highlighting the strategic value and growth potential in waste, recycling, and utility markets.
• Terex maintains a strong balance sheet and ample liquidity, providing flexibility to invest in strategic initiatives, execute share repurchases and dividends, and manage debt obligations, with a clear plan to deleverage in the second half of 2025.
• The company's 2025 outlook anticipates overall sales growth driven by ES, partially offsetting organic declines, with management guiding to adjusted EPS of $4.70 to $5.10, underpinned by expected margin improvements in legacy segments, continued strong ES performance, and synergy realization, while actively mitigating risks from tariffs and macroeconomic uncertainty.

A Transformed Terex: Building Resilience in a Dynamic Industrial Landscape

Terex Corporation, a global manufacturer of industrial equipment, is undergoing a significant strategic evolution, positioning itself as a more diversified and resilient player in the face of cyclical market dynamics. The company, notably different than it was five or ten years ago, has strategically refined its portfolio, shedding non-core assets and focusing on key segments: Materials Processing (MP), Aerials (the Genie business), and the newly formed Environmental Solutions (ES) segment. This transformation is underpinned by an "Execute, Innovate, and Grow" strategy designed to enhance through-cycle performance and capture long-term growth opportunities.

At its core, Terex operates within vital sectors like construction, infrastructure, mining, material handling, and increasingly, waste and recycling and utilities. Its competitive positioning is shaped by a blend of operational execution, strategic market focus, and technological innovation. While competing with industry giants like Caterpillar (CAT) in broader construction and mining, Oshkosh (OSK) in aerial platforms, and Manitowoc (MTW) in cranes, Terex often carves out niches through specialized equipment, adaptability, and a strong aftermarket and financing network. For instance, its financing solutions are noted for potentially reducing customer acquisition costs, and its global distribution network fosters customer loyalty. However, like its peers, Terex faces vulnerabilities related to supply chain dependencies and the inherent cyclicality of heavy equipment markets.

A cornerstone of Terex's strategic evolution is its commitment to innovation, leveraging technology to create differentiated value for customers and enhance internal operations. This is not merely a buzzword but a tangible effort reflected in recent product introductions that account for over 20% of sales in the past three years. In the MP segment, innovations like the first fully electric minerals processing multi-plant operation demonstrate a focus on eco-conscious solutions, reducing emissions and diesel consumption while improving output and efficiency. The new CBI woodchipper, part of the Green-Tec line, highlights a focus on performance and ease of maintenance for growing sectors like biomass and vegetation management.

In Aerials, the redesigned Genie slab scissor family offers industry-leading quality, performance, and lower total cost of ownership, including a model that eliminates hydraulic oil, catering to specific market needs like data centers. The ES segment, bolstered by the ESG acquisition, brings the innovative 3rd Eye digital suite for waste collection vehicles, providing tangible benefits in revenue generation, operating efficiency, and safety. This technology is seen as having potential applications across other Terex product lines, such as concrete mixers and utility trucks, representing a direct synergy opportunity. Terex also invests internally in robotics, automation, and digitizing workstreams to improve manufacturing efficiency and flexibility, aiming to reduce fixed costs and enhance resilience regardless of market dynamics. While specific, quantifiable performance metrics for all technological advantages compared to competitors are not uniformly detailed, the strategic intent is clear: leverage technology to improve customer ROI, create competitive moats, and drive operational excellence.

The Strategic Pivot: Integrating ESG and Reshaping the Portfolio

The most significant recent development in Terex's transformation is the acquisition of Environmental Solutions Group (ESG) from Dover Corporation (DOV), completed in October 2024 for $2010 million. This was the largest acquisition in the company's history and a deliberate move to accelerate long-term shareholder value growth by adding a non-cyclical, financially accretive, and market-leading business. The integration of ESG, known for its refuse collection bodies and waste compaction equipment, with the legacy Terex Utilities business into the new Environmental Solutions (ES) segment effective January 1, 2025, fundamentally alters Terex's portfolio mix.

The strategic rationale is compelling: ESG operates in the waste and recycling industry, characterized by low cyclicality and steady growth, providing a resilient revenue stream less exposed to the volatility of traditional construction markets. The acquisition also makes Terex a more US-centric company, with approximately 75% of its 2025 U.S. machine sales expected to be generated by products manufactured in its 11 U.S. facilities, a positioning management views as advantageous in the current geopolitical environment.

Initial performance from the acquired business has been strong. In the stub period following the October 8, 2024 close through year-end, ESG contributed $228 million in net sales and a robust 21.9% operating margin (22% EBITDA). The ES segment's performance in Q1 2025 further validated the acquisition's potential, generating approximately $400 million in sales, representing one-third of total Terex revenue. The segment delivered a strong 19.4% operating margin in Q1 2025, reflecting meaningful improvement at the ESG portion and consistent performance in Terex Utilities. Management highlighted record throughput in refuse collection vehicles, contributing to record sales for the segment. The integration is on track, with expectations to deliver at least $25 million in operational run-rate synergies by the end of 2026, including leveraging ESG's expertise to improve throughput and expand capacity in Terex Utilities, where backlog stretches into 2027.

Managing Through Near-Term Headwinds: Performance and Operational Discipline

While the ES segment provides a new engine for growth and stability, Terex's legacy segments, Aerials and MP, are currently navigating a period of cyclical adjustment. Q1 2025 consolidated net sales decreased by 4.9% year-over-year to $1229 million, primarily due to a 25% decline in organic business sales, partially offset by the ESG contribution. This organic decline was attributed to continued channel adjustments, timing of backlog conversion, macro uncertainty, and higher interest rates impacting end-market demand, particularly in Europe and for rent-to-own conversions in the U.S.

The impact on profitability was more pronounced. Consolidated operating profit decreased by 56.3% year-over-year to $69 million, resulting in an operating margin of 5.6%. This was primarily driven by lower sales volume and unfavorable absorption in Aerials and MP due to production cuts implemented in the prior two quarters to manage inventory and rebalance supply with demand. Excluding ESG, the organic operating margin declined significantly, with volume and unfavorable absorption accounting for the majority of the decrease, partially mitigated by cost reduction actions.

Specifically, the Aerials segment saw Q1 2025 sales decline by 27.8% year-over-year to $450 million, with operating profit plummeting by 97.8% to just $2 million (0.4% margin). This reflected a return to a more customary seasonal delivery pattern and the impact of lower production volumes. Management stated these production cuts are largely behind them and expects Aerials to return to double-digit operating margins in Q2 as production ramps up with seasonal demand.

The MP segment experienced a 26.5% year-over-year sales decrease in Q1 2025 to $382 million, with operating profit down 50.0% to $36 million (9.4% margin). This decline was attributed to lower channel requirements and end-market demand across most product lines and geographies. Despite the volume and mix headwinds, MP maintained double-digit margins due to cost reduction actions, including a 12% reduction in SG&A year-over-year. Management anticipates Q1 was the lowest margin quarter for MP, with sequential improvement expected throughout the year.

These results underscore the cyclical sensitivity of the legacy businesses but also highlight management's proactive measures to align costs and production with demand. The impact of under-absorption from production cuts was estimated at approximately $0.31 per share in Q1 2025, illustrating the near-term pain taken to manage inventory and position for future demand.

Financial Strength and Capital Allocation

Terex maintains a solid financial foundation and ample liquidity, crucial for navigating the current environment and funding strategic initiatives. As of March 31, 2025, the company had $298 million in cash and cash equivalents and $800 million in undrawn revolving credit facilities, totaling approximately $1.1 billion in available liquidity. While liquidity decreased in Q1 2025 due to operational cash usage, capital expenditures, share repurchases, and dividends, management is confident in its ability to generate sufficient cash flow to meet obligations and support operations for at least the next 12 months.

The ESG acquisition significantly increased the company's debt levels. The financing included $750 million in 6.25% Senior Notes due 2032 and a $1250 million New Term Facility due 2031, alongside an upsized $800 million revolving credit facility due 2029. Despite the increased leverage, management highlights a flexible capital structure with a mix of secured/unsecured and variable/fixed-rate debt, with no significant maturities until 2029. The company was in compliance with all financial covenants under its Amended Credit Agreement as of March 31, 2025. Management plans to deleverage in the second half of 2025, driven by expected increases in cash flow from operations and the full-year contribution from ESG.

Capital allocation priorities remain focused on investing in the business (with planned CapEx of approximately $120 million in 2025) and returning capital to shareholders. In Q1 2025, Terex repurchased $32 million of common stock and paid $11 million in dividends ($0.17 per share), demonstrating a continued commitment to shareholder returns despite the near-term operational pressures and acquisition financing. The company's Return on Invested Capital (ROIC) stood at 15% as of March 31, 2025, which management considers well above its cost of capital and a key metric for evaluating operational performance and capital effectiveness.

Competitive Landscape and Strategic Positioning

Terex operates in a competitive global market, facing established players across its segments. In Aerials, it competes with companies like Oshkosh's JLG and others, where market share dynamics are influenced by rental customer capex cycles and product features like durability and fuel efficiency. Terex's Genie business emphasizes product innovation and customer ROI, aiming to differentiate through features like the all-electric scissor lift. The anti-dumping cases pursued by the industry against Chinese imports highlight the competitive pressures, particularly from Asian manufacturers, and the importance of a level playing field. Terex's significant manufacturing footprint in North America (including its Monterrey facility) and Europe provides a strategic advantage in serving these key markets and mitigating some tariff impacts.

In Materials Processing, competition comes from global manufacturers offering crushing, screening, and material handling equipment. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Terex's MP segment has demonstrated strong performance and growth over the past decade. Its portfolio diversity within MP (aggregates, concrete, cranes, environmental) allows it to address various customer needs. The recent weakness in European markets, particularly impacting the Fuchs material handling and cranes businesses, underscores the sensitivity of certain MP verticals to regional economic conditions.

The ESG acquisition significantly enhances Terex's competitive position in the waste and recycling market, adding leading brands like Heil and Marathon. This market is characterized by strong demand drivers (demographics, environmental regulations) and offers a less cyclical profile compared to traditional construction. The integration of ESG with Terex Utilities creates a formidable player in the Environmental Solutions space, leveraging complementary products and customer bases. The strong Q1 2025 performance and backlog in this segment suggest a favorable competitive position in these growing end markets.

Overall, Terex's competitive strategy involves leveraging its operational capabilities, investing in targeted innovation, maintaining strong customer relationships, and strategically diversifying its portfolio. While facing headwinds in legacy markets and competitive pressures, the company's focus on cost control, operational efficiency (including optimizing its manufacturing footprint), and the strategic benefits of the ESG acquisition are key to its positioning. The ability to effectively integrate ESG, realize expected synergies, and capitalize on long-term tailwinds will be critical determinants of its future competitive success.

Outlook and Future Growth Drivers

Terex's outlook for 2025 reflects a company in transition, balancing near-term market adjustments with the strategic benefits of its recent acquisition and operational initiatives. Management is guiding to full-year 2025 net sales of $5.3 billion to $5.5 billion, representing growth driven entirely by the full-year contribution of ESG, which is expected to more than offset an anticipated 8% to 12% decline in organic sales from the legacy businesses.

The full-year adjusted EPS outlook is maintained at $4.70 to $5.10. This forecast incorporates lower expected organic operating profit, largely offset by the accretive contribution from ESG and ongoing cost reduction actions. Key assumptions include easing of recently announced tariffs (specifically, an assumption of roughly 50% de-escalation in China tariffs in the near term), continued strong performance in the ES segment, and planned margin improvements in Aerials and MP as production aligns with demand and under-absorption impacts subside. Management expects a back-half weighted earnings cadence, with Q2 and Q3 projected to be stronger than Q1 and Q4.

Segment-specific guidance anticipates Aerials sales down low double digits, reflecting a conservative assumption that rental customers are primarily focused on replacement CapEx. MP sales are expected to be down high single digits, with a gradual recovery anticipated throughout the year, driven mostly by North America and replacement demand. The ES segment outlook is increased to high single-digit sales growth, based on the strong Q1 performance and continued demand in waste, recycling, and utilities.

Beyond 2025, Terex is positioned to benefit from several significant long-term tailwinds. Infrastructure investment, particularly in the United States under acts like the IIJA, IRA, and CHIPS Act, is expected to drive demand for construction and utility equipment. Onshoring trends in manufacturing and the proliferation of mega-projects (data centers, EV plants, semiconductor facilities) represent substantial opportunities for both Aerials and MP equipment. The growing global focus on waste management, recycling, and renewable energy supports sustained demand for the ES segment's offerings. Terex's strategy of operational excellence, targeted innovation, and portfolio diversification aims to leverage these macro trends and drive future growth.

Conclusion

Terex Corporation is navigating a complex market environment marked by cyclical pressures in its traditional segments and macroeconomic uncertainties. However, the company's strategic transformation, highlighted by the significant ESG acquisition and the formation of the Environmental Solutions segment, is fundamentally reshaping its risk profile and growth trajectory. By increasing exposure to resilient, growing markets like waste, recycling, and utilities, Terex is building a more stable and diversified revenue base.

While near-term performance in Aerials and MP reflects the impact of necessary production adjustments and market softness, management's focus on operational discipline, cost controls, and targeted investments positions these segments for expected margin recovery and participation in future replacement cycles and mega-project demand. The strong initial contribution and positive outlook for the ES segment underscore the strategic value of the ESG acquisition and the growth potential in its core markets.

With a solid balance sheet, ample liquidity, and a clear capital allocation strategy, Terex possesses the financial flexibility to execute its strategic initiatives, manage its debt, and continue returning value to shareholders. The 2025 outlook, while acknowledging ongoing challenges like tariffs and market volatility, points to overall growth driven by the diversified portfolio and operational improvements. Investors should monitor the successful integration of ESG, the realization of expected synergies, the trajectory of market recovery in legacy segments, and the company's ability to effectively mitigate external risks to assess the continued execution of Terex's strategy and its potential for long-term value creation.