Terex Corporation (NYSE:TEX) Q1 2024 Earnings Call Transcript

Terex Corporation (NYSE:TEX) Q1 2024 Earnings Call Transcript April 26, 2024

Terex Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Terex First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Neil Frohnapple, Vice President of Investor Relations.

Neil Frohnapple : Good morning and welcome to the Terex First Quarter 2024 Earnings Conference Call. A copy of the press release and presentation slides are posted on our investor relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined by Simon Meester, President and Chief Executive Officer, and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 of the presentation, which reflects our Safe Harbor Statement. Today’s conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.

These risks are described in greater detail in the earnings materials and in our reports filed with the SEC. In addition, we will be discussing non-GAAP financial information we believe is useful in evaluating the company’s operating performance. Reconciliation for these non-GAAP measures can be found in the conference call materials. Please turn to slide four and I’ll turn it over to Simon Meester.

Simon Meester: Thanks, Neil, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. I’d like to begin by thanking all Terex team members for delivering outstanding performance in Q1. The team executed really well and delivered strong results to start the year with. We increased sales by 5% and expanded operating margins by 20 basis points from last year. The company also delivered earnings per share of $1.60 in the quarter and achieved a return on invested capital of more than 27%. These outstanding results demonstrate our ability to execute as the team continues to perform at a high level. Additionally, we’re raising our 2024 sales and profit outlook and now expect earnings per share in the range of $6.95 to $7.35.

During the quarter, we also continued to advance our strategic initiatives to drive long-term shareholder value. We launched several new products across the portfolio and continue to make good progress ramping up our new facility in Monterrey. This new facility continues to absorb more of Genie’s global production mix and is expected to improve the segments through cycle margin performance. Please turn to Slide 5. Customer demand remains healthy across most of our businesses supported by favorable end-market conditions. Our Q1 backlog of $3.1 billion is significantly above historical levels and gives us confidence in the sales outlook for the remainder of the year. As expected, the backlog continues to moderate from peak levels, which reflects more normal lead times, improving supply chain, and continued efforts by our team members to improve overall throughput.

Consolidated bookings in Q1 of more than $1 billion were down from last year, which reflects a return to more normal seasonal order patterns combined with softer demand in Europe. In the MP segment, the backlog is still above historical norms and bookings increased sequentially from the fourth and the third quarter. Additionally, our AWP backlog now covers the 2024 outlook with our utilities business actively taking orders for 2025. Overall, based on customer feedback, our backlog coverage, our bookings, and leading indicators, we feel confident about raising our 2024 outlook. Please turn to Slide 6. The overall market outlook remains strong for many of our primary end-markets, especially in North America, which represents over 60% of total company sales.

In fact, we saw double-digit sales growth in North America in Q1. Our businesses remain well positioned to benefit from higher U.S. Government spending to modernize infrastructure over the coming years with an increasing number of projects continuing to be announced. Additionally, construction spending on manufacturing is up more than 30% year-over-year, driven by on-shoring and mega projects related to semiconductor manufacturing, clean energy and EV battery projects. These favorable end market trends combined with replacement cycle tailwinds and high equipment utilization rates are beneficial for our Aerial’s business. Additionally, the increasing adoption of our products in emerging markets such as India is another positive. The utilities market is expected to continue to grow, supported by investment in grid upgrades and expansion required for zero-carbon and amplified electrification needs like power generation for future AI applications.

In the US, power-related spending has been increasing at double-digit rates. Our utilities business is benefiting from this growing demand and was up double digits in the first quarter as the team is working hard to overcome ongoing shortages in the supply chain. Strength in US Infrastructure, General Construction and Residential end-markets will continue to benefit MP’s aggregates and concrete businesses. We expect these tailwinds to offset softness in businesses with higher European exposure. We expect MP’s environmental business to continue its growth, driven by increasing demand for waste recycling. And our Fuchs business is focused on expanding into new geographies and new products to help offset the near-term demand softness. Overall, we see continued strength in the infrastructure, utilities, manufacturing, and recycling markets, and remain positive on the 2024 market outlook for our portfolio.

Please turn to Slide 7. I now want to take a step back and provide a few reasons on why I’m confident in Terex’s growth trajectory over the coming years. First, Terex has a diverse product portfolio that provides differentiated value to our customers at all points of the project life cycle. Notably, our equipment is utilized by customers across various applications, from foundation to building, repair, maintenance, and the eventual recycling of materials for reuse. We also remain committed to developing new products to address our customers’ evolving needs and maximize their return on investments. In fact, the innovate part of our strategy continues to generate incremental growth for the company. For example, approximately 20% of our annual sales are from new products introduced in the last three years.

This is a testament to our team members’ collaboration with our customers to provide innovative solutions to support development across the globe. Please turn to slide 8. Terex also remains well positioned to capitalize on megatrends and emerging technologies that will favorably impact our end-markets over the coming years. In total, around 80% of our addressable market is aligned with stimulus from mega trends and from increasing government investment and incentives. Our market-leading businesses all benefit to varying degrees by more investment in infrastructure, digitalization, waste recycling, and electrification. For example, the MP team has leading positions in global crushing and screening markets that benefit from the growth of on-site demolition and infrastructure projects in general and the associated demand for aggregates.

Keep in mind that aggregates represents around 50% of segment sales. MP also serves customers across all project life cycle phases, including growing demand for environmental and waste recycling solutions. Our utilities business is well positioned to capitalize on investment required to upgrade the US Electrical grid to support the accelerating demand as the industrial world continues to move to the use of more electrical power. And our Genie products are benefiting from demand from infrastructure projects, data centers, manufacturing, on-shoring, and investments in the entertainment sector. Overall, Terex diverse product portfolio positions us very well for 2024 and beyond. Let’s turn to Slide 9. It has been an exciting first few months as CEO of Terex, and I would like to provide a few more thoughts on our strategic priorities as we look ahead to the future.

Our Execute, Innovate, Grow strategy has built strong momentum over the last several years. We now have a diversified portfolio of market leading businesses that are generating higher levels of performance through the cycle. In fact, we’re on track to achieve more than $7 of earnings per share and greater than $300 million of free cash flow for the second consecutive year. I’m confident that Terex have significant upside for many years to come. Looking ahead, I strongly believe we can create even more value for shareholders by accelerating the growth element of our strategy over the coming years. And it starts with our strong balance sheet and cash flow generation, which provides plenty of firepower to pursue opportunities that will drive sustainable long-term value.

With respect to organic growth, we’re focused on increasing product vitality and targeting opportunities to drive incremental growth across the portfolio. The team is also moving with urgency to capitalize on the megatrends and emerging technologies that I highlighted earlier. And finally, we continue to grow the M&A pipeline to identify opportunities that are financially attractive, broaden our market reach, and strengthen our portfolio. Keeping in mind, we continue to evaluate potential inorganic action against other alternative uses of capital, which is a good position to be in. Overall, I’m excited for the opportunities that lie ahead and I’m confident we will elevate Terex to new levels of performance. And with that, let me turn it over to Julie.

Julie Beck: Thanks, Simon, and good morning, everyone. Let’s take a look at our strong first quarter financial performance found on Slide 10. We posted sales of $1.3 billion, up about 5% from last year, reflecting strong demand for our products across multiple businesses. Geographically, we delivered significant growth in North America, while Europe declined in last year’s very strong first quarter. Gross margins of 23% increased by 40 basis points over prior year on improved manufacturing throughput and disciplined price cost management. SG&A expense increased over the prior year due primarily to higher compensation expense, although structural cost came in largely as expected. SG&A as a percent of sales was 10.8% up slightly from last year.

Note that SG&A includes $4 million of discrete financial call-outs due to accelerated vesting and severance charges. Excluding these charges, SG&A came in at 10.4% of sales better than last year. Income from operations was $158 million with an operating margin of 12.2%, a 20 basis improvement over prior year. Operating income also includes the $4 million impact of vesting and severance charges. Interest expense was relatively consistent with the previous year, while other expense increased $7 million from the prior year, primarily due to unfavorable mark-to-market adjustments. The first quarter global effective tax rate was 20.5% compared to 17.5% in the first quarter of 2023. First quarter earnings per share of $1.60 was consistent with last year.

As expected with a return to more seasonal patterns, free cash flow for the first quarter was negative, as increasing operating profits were more than offset by working capital added to support the sales outlook. In Q1, we continue to carry a higher level of inventory to support increased Q2 and Q3 sales volumes, as well as our Genie production [mode] (ph). Let’s take a look at our segment results. Please turn to Slide 11. The MP team has gotten off to another good start in 2024 and is executing well, despite more challenging macro conditions for a few of its businesses. Before I go into more details on the quarter, let me first provide more perspective on the segment from a high level. We have nearly doubled the size of the MP segment over the last seven years and expanded operating margins by almost 700 basis points during this period.

Today, MP consistently generates mid-teens operating margins and represents about half of our total annual operating profit. And the segment remains well on track to achieve the Investor Day targets, we established for 2027. In fact, delivering on the long-term sales target of $2.7 billion represents an incremental dollar per share of earnings power for the total company relative to our 2024 outlook. For the first quarter, MP sales declined by 6% to $520 million compared to the exceptional first quarter of 2023, due primarily the softer demand in Europe, partially offset by growth for aggregate. MP’s recorded operating profit of $72 million was down $13 million due to the impact of lower sales volume, unfavorable product mix, and product liability reserve.

Although MP’s operating margins were down 150 basis points from last year, they were 50 basis points better than expected. MP ended the quarter with backlog of $712 million, still above historical norms, while our bookings increased 7% sequentially from the fourth quarter. Keep in mind that the MP business is shorter cycle and continues to transition back to more traditional book-to-bill dynamics, as supply chains continue to improve which impacted the comparison for bookings relative to the prior year. Turning to slide 12. AWP delivered excellent performance in the first quarter with sales of $773 million, up nearly 13% from last year, primarily reflecting higher demand, as well as improved supply chain and manufacturing throughput. AWP reported quarterly operating profits of $107 million, an increase of 29% over the prior year.

The increase was driven by strong operational execution on the higher volume, improved supply chain performance, and disciplined price cost management. Operating margins expanded by 180 basis points with an incremental margin of 28% reflecting strong performance overall by the team. And finally, I would note that AWP backlog is strong at $2.4 billion, which is more than 2 times the historical norm. Please see Slide 13. Terex has a strong balance sheet with ample liquidity. Our net leverage remains low at 0.5 times, well below our 2.5 times target through the cycle, providing us plenty of flexibility as we look ahead. And our outstanding bonds are at an attractive fixed rate of 5% until the end of the decade. We are reaffirming our 2024 free cash flow outlook range of $325 million to $375 million.

As you can see on this slide, Terex is on track to generate more than $1.1 billion of free cash flow over this five-year period. This cash generation has allowed us to strengthen the balance sheet and invest for profitable growth, all while returning significant cash to shareholders. We’re planning for capital expenditures this year of approximately $145 million, or about 2.7% of sales at the expected midpoint, with the largest investment related to our Monterrey facility. Note that we would expect CapEx to take a step down next year and to be a benefit to free cash flow conversion in 2025. We recorded a return on invested capital of 27.6% of 370 basis points year-over-year. Terex is in an excellent position to continue advancing our strategic growth initiatives while returning capital to shareholders.

Now turning to Slide 14 and our full year outlook. It’s important to realize we are operating in a complex environment and many macroeconomic variables and geopolitical uncertainties that results could change negatively or positively. With that said, this outlook represents our best estimates as of today. Following the strong start to the year, we are raising both our sales and earnings per share outlook for 2024. We are increasing our earnings per share outlook to the range of $6.95 to $7.35, up from the previous outlook of $6.85 to $7.25. We are also raising our sales outlook to a range of $5.2 billion to $5.4 billion, up $100 million compared to the prior outlook midpoint. Our sales outlook incorporates healthier customer demand and improved operational throughput.

With that said, the outlook reflects strong demand in North America and plans for continued softness in Europe over the balance of the year. We expect the first half sales to be slightly higher than the second half, with the second and third quarter sales higher than the first and fourth quarter as we return to a more seasonal customer delivery pattern. We anticipate full year operating margins in a range of 12.8% to 13.1% consistent with our prior outlook and solidly above full year 2023 performance. The margin expansion reflects strong operational execution and the impact from the higher sales outlook. We are also driving ongoing cost reduction activities to offset softer demand in Europe and continued inflation. At the midpoint of the outlook range, the implied incremental margin range for the full year is about 30%.

From a modeling perspective, we do want to emphasize the strong second quarter performance in 2023, when making year-over-year comparison for the remainder of the year. We expect corporate and other expenses to be around $25 million in the second quarter and then approximately $20 million per quarter in the second half of the year. We now expect interest and other expense of $65 million for the full year higher than the prior outlook to primarily reflect the financial callout in the first quarter. The outlook for the rest of the below-line items are largely unchanged from our previous outlook. And as I highlighted earlier, we continue to estimate free cash flow in the range of $325 million to $375 million. Let’s review our segment outlook.

We expect MP sales to be $2.2 billion to $2.3 billion for the full year with margins from the range 15.6% to 15.9%, both consistent with the previous outlook. For the second quarter, sales and margins are expected to step up from Q1 levels. Profitability is expected to steadily increase through the balance of the year. For AWP, we now expect 2024 sales of $3 billion to $3.1 billion, up $100 million from our previous outlook. We are slightly raising our operating margin outlook to a range of 13.5% to 13.8% for the full year, representing upwards of 100 basis points of expansion over 2023. We expect Q2 sales to be up from the prior year, while margins are anticipated to be around 150 basis points lower compared to last year’s very strong second quarter.

Note that margins will be impacted by Monterrey efficiency and unfavorable mix, partially offset by continued cost-out activity. We anticipate the quarterly cadence of our AWP sales to be closer to historical patterns with the highest sales in Q2 and Q3, which will also drive higher profitability for those quarters. Overall, our increased full year outlook reflects our confidence that 2024 will be another outstanding year for Terex. And with that said, I will turn it back to you, Simon.

Simon Meester: Thanks, Julie. Turning to Slide 15. In summary, the Terex team delivered excellent results to start the year and we now expect even stronger performance for 2024. We have a diversified portfolio of industry-leading businesses that are generating higher levels of performance through the cycle. We are also well positioned to continue to benefit from megatrends and emerging new technologies like electrification, digitalization and AI. The team remains focused on operational execution to drive greater efficiency and higher returns on invested capital. We have a strong balance sheet and generate significant cash flow that will continue to fuel our profitable growth strategy and return capital to shareholders. And we have a global experienced diverse and highly engaged team that is committed to continue to create value for our customers and our shareholders over the coming years. And with that, let me turn it back to Neil.

Neil Frohnapple: Thanks, Simon. As a reminder, during the question-and-answer session, we ask you to limit your questions to one and a follow-up to ensure we answer as many questions as possible this morning. With that, I would like to open it up for questions. Operator?

Operator: Thank you. [Operator Instructions] Our first question comes from Jamie Cook from Truist Securities. Please go ahead, your line is open.

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Q&A Session

Jamie Cook: Hi, good morning. Congrats on a nice quarter. I guess Julie, my first question on materials processing. You noted margins came in 50 basis points ahead of expectations, but you are not changing your margin guidance for the year. And just also surprised or not — the sales guidance was reiterated when the markets seem weaker, in particular with the European exposure within materials processing. So if you could just help me on the MP guide. I guess — and Simon, now that I guess you’re close to five months in, can you just talk to what your — I know your strategy sort of accelerate growth, can you talk to what you are seeing on the M&A sort of pipeline, whether you think there is an opportunity to do deals in 2024 and then just sort of the size of the deals that you are looking at and where you would be interested. Thank you.

Julie Beck: Okay. Jamie, I guess I’ll start with the MP outlook. So the MP business, we had a better quarter than I anticipated. They were about 60 basis points ahead in operating margin from what we had anticipated. They had some favorable geographic mix. We had more North America exposure, they were also impacted in the quarter about 50 basis points for that product liability charge that I mentioned. We do anticipate that the — some of the European markets, in particular our material handling business, the German business, [ type of scrap] (ph) is challenged going forward. But we see upside in our environmental businesses and our concrete business and aggregates continues to perform well. And so the — and from a margin perspective, we are expecting our margins to improve sequentially, as we go throughout the year, and we expect the sales to take a step up from Q1 levels as well. So overall, we are expecting another nice year from the MP business.

Simon Meester: Yes. Jamie, good morning. Thanks for the question. Yes, so it’s been four months, it’s been very exciting so far. Obviously looking back over the last couple of years, I don’t think there is any denying that we have built very strong operational momentum with our Execute, Innovate and Grow strategy. We truly transform the company, we have a strong portfolio that we feel very good about. So I’d say, my first priority is to make sure we maintain that positive momentum that we are currently on. But there is no doubt that we now are in a position where we can also focus on now that we have that strong operational momentum and how we can accelerate growth and to your point, obviously, we look at inorganic options.

We’re also looking at organic options. We’re a $5 billion business, in a $34 billion addressable market. There is still a lot of white space to go after organically and with good return on invested capital, that is on the table for us just as much as inorganic action. But when it comes to the inorganic action, for the reasons I just laid out, we’re not really in a hurry. We didn’t set ourselves a target, we didn’t set ourselves a time line because we are in such a strong place. And because we have strong demand for our existing businesses, for the next couple of years, we are going to take our time for this, but we do have an active pipeline of opportunities. We’re looking for anything inside and outside our current addressable markets that would be attractive that would strengthen our portfolio, that will make us stronger, we widen our moat but obviously needs to be financially attractive and ultimately further strengthen our future earnings profile.

But again, I can’t emphasize this enough. It all needs to rank favorably versus all the other actions that we have available to us like share buybacks, like investing in our current businesses and dividends. And so that’s how we force rank those opportunities. But anything is on the table.

Jamie Cook: Okay, thank you.

Simon Meester: Thanks Jamie.

Operator: Our next question comes from Stan Elliott from Stifel. Please go ahead. Your line is open.

Stanley Elliott: Hi, good morning, Simon. Good morning Julie. Thank you for the question. I guess piggy-backing on that with leverage, you guys have a kind of a 2.5% kind of net target through the cycle, probably going to be close to debt free by the end of the year. How large of a deal would you want to pursue if something were to pop up? And if that doesn’t materialize this year, then maybe kind of help us again with opportunities for buyback and things like that.

Julie Beck: Yes. Well Stanley, we will evaluate. We’re evaluating all sources of — we have a wide pipeline. So we look at smaller things and made some larger things as well, and we’re not prescriptive. I think we’re just trying to follow the criteria that Simon mentioned before. When we think about share repurchases, certainly we’ve repurchased $1.6 billion of shares over the last seven years or eight years. Last year, we returned over 28% of our free cash flow to shareholders and we have $130 million remaining at our current authorization for share repurchases. So again, we will continue to evaluate share repurchases and inorganic opportunities along the way and make the decision that provides with the greatest return.

Stanley Elliott: And I guess, secondly, the comments, I mean, you had about 20% new products in the past three years. This comes at a time when you guys are generating very strong margins returned and making accelerated CapEx. That combination typically does not happen. What are you guys doing differently, is it voice a customer? Is it kind of moving into some kind of niche white space, but it sounds like the new product piece is probably exceeding expectations.

Simon Meester: Yes, definitely. And at the end of the day, we’re a product company. That’s what we do, that’s what excites us. That’s what makes us going every single day we are excited to bring new products to the market. We deliver most — our products go to businesses. They are looking for return on investment. So whatever improves, return on investment for our customers and makes our customers more successful. But yes, in MP, we’ve been expanding our hybrid and our [plug-power] (ph) alternatives. We announced our Cummins partnership to collaborate on hydrogen power. We’ve expanded our recycling and environmental solutions offerings like Greentech and the new Slow Speed Shredders that I talked about in the presentation. And it’s really all the combinations you can think of new products in existing markets, existing products in new markets.

We are exploring it all. We have opportunities to take existing products into new markets. We have opportunities to take new markets and new products in existing markets. On the Genie side, Genie has been a leader in the development of electric and hybrid products for some time with the excess capacity in 2018, even before the regulations changed Genie already brought that to market. But today, with our hybrid booms they’ve really been trendsetters, the new telehandler setup come out with significantly improved total cost of ownership. And then lastly, on the utility side, introduced the first all-electric bucket truck combined with an ePTO on an all-electric chassis that was two years, if I remember correctly, a big opportunity going forward there.

And so, yes – we are playing the NPD card really hard because at the end of the day, that’s I think, what makes our company what it is and gives us competitive advantage that it has.

Stanley Elliott: Perfect. Thank so much. Congrats and best of luck.

Simon Meester: Thank you.

Operator: Our next question comes from Steven Fisher from UBS. Please go ahead. Your line is open.

Steve Fisher: Thanks, good morning. You mentioned, Julie a benefit from price versus cost management. Can you maybe just give us some quantification of that in the quarter? How did it compare to your expectations? And what do you have embedded in there — for the rest of the year on price versus cost?

Julie Beck: Yes. Thanks for the question, Steve. In the first quarter, the team just really performed well, particularly in AWP. They were able to — we saw improvement in the supply chain, we were able to bring in the labor that we needed in Washington State, as well as in Monterrey which was terrific, and we were able to ship more than we expected. And of course, that helps with the overall margin. When we talk about pricing and price cost, we always talk about our price cost being price cost neutral. And we are anticipating pricing for the year in about that low mid-single digit range. So that’s where we’re at from price cost. We continue to monitor price cost. And as you know, the MP business is very dynamic in their pricing, as they’re quoting virtually every piece of equipment.

Steve Fisher: That’s helpful. And then just you mentioned, Simon, I think the utilities orders for 2025. Can you just talk a little bit more about how the discussions around 2025 have evolved in utilities and also more broadly for the company?

Simon Meester: Yes. It really is – we are not there definitely for MP because MP is returning more to kind of a book-to-bill cadence typically with about three months or four months forward visibility, perils mostly covered for 2024. We could take some more bookings probably in 2024, if we would find the labor material for it, and we expect to start discussions for 2025 typically as we do in Q3 and Q4. But then yeah utilities is already actively taking orders for 2025. Just a lot of demand, we’re still struggling with a little bit of throughput because of bodies and chassis. But overall, that business has a lot of upside for the next couple of years. Everything equal, just obviously the mega projects alone but grid upgrades that need to happen, means grid expansion.

And I spoke about AI, and I know, it’s a little bit of a buzzword, but thinking about AI applications that will make their way into the market, they are all very power intense, power intensity means, grid upgrades means grid expansion and exactly in our wheelhouse. So that’s why we’re very excited about that business going forward.

Steve Fisher: Terrific, thank you.

Operator: Our next question comes from David Raso from Evercore ISI. Please go ahead. Your line is open.

David Raso: Yeah, hi. Thank you. Following up on the order conversation. I think clearly ’24, people are going to try to figure out why can’t we do maybe a little better on the margins given what’s already on visibility with the backlog. Then you mentioned some of the manufacturing challenges that could arise, maybe parts of Europe within AWP. But can you help us understand sort of what’s in the backlog today when it comes to mix product type, which channel you’re selling to — just so we can better understand particularly why the margins should be lower the rest of the year versus the first quarter. I know you said the second quarter, the number you provided will be better than the first quarter. But I’m talking for the rest of the year, the implied margins are below the first quarter which is a little surprising.

So again, is there something in the mix or just conservatism on some manufacturing issues. And then on the ’25, order conversation, anything you can help us with on mix. The end markets you just described, are those more big booms, mid-sized booms. Just trying to get a sense of [Teles versus Aerials] (ph). Just trying to set up a little bit why the margin is lower the rest of the year. And also any thoughts around ’25 for mix?

Julie Beck: So when we think about the operating margins for the year, we are expecting improvement from year-over-year, and we are expecting a 30% incremental margin. So we see margins improving over last year, and we see margins improving sequentially in Q2, Q3. And then of course, they come down in Q4 because we had [usually] (ph), due to seasonal patterns and lower production days in the fourth quarter. But we’re anticipating higher margins and 30% overall incremental for the year.

Simon Meester: Yes. I would just say, no big material swings in the backlog that should be accounted for top of my head. But yes, we are just going back to more normal kind of seasonal behaviorals where our Q2 and Q3, are going to be from a top-line are probably going to be our stronger quarters Q4 because of Julie — what Julie said to less working days going to be traditionally probably one of our below average quarters. So that will just make its way in terms of incrementals down to bottom-line. And then Q2, we just have a little bit of headwinds because we’re ramping up in Monterrey, and that’s how we account. We don’t — we see sequential improvement, David.

David Raso: For AWP specifically, the rest of the year is implied at 13.6% margins. We just did 13.9%. I know the fourth quarter seasonally can be lower than the first quarter. But I’m just making sure we understand is there some understandable Europe, all the risks that are out there. I’m just making sure there isn’t something we’re missing where it’s logical without just trying to be a little cautious, which I appreciate. Why would the rest of the year margins be below the first quarter? Because — that’s what the implied numbers are? I just want to make sure we’re not surprised a quarter or two from now with a big mix issue or the first quarter had a unique price cost that we are giving back in the rest of the year? I just want to make sure we understand the base case here. Thank you.