As I said in my opening comments, that’s the reduced geopolitical risk to control the supply chain going forward. And so that’s going to continue. So, it does give us confidence and some momentum going into 2024. But again, at $2 billion of backlog, that’s good for us historically. It provides that momentum into 2024. And for all the team will provide a 2024 outlook in our Q4 earnings call.
Operator: Our next question comes from David Raso from Evercore ISI. Please go ahead. Your line is open.
David Raso: Thanks, very much. John, best of luck, and obviously, congratulations to Simon. The spirit of the question is just trying to frame the potential incremental margins in AWP for next year. Just thinking about trying to leverage that backlog. The numbers I’m running for the impact on utilities on the segment for 3Q and 4Q. It feels like ex the utility impact you wouldn’t really have changed much to the AWP guidance much, right, a little up on the revenue, but the margins still feel like they would have been about the $13.8 million — and I know that was your guidance, but I think people are looking for a little more leverage, some upside in the profitability. Can you take us through just your thoughts around what’s different in ’24 versus ’23?
What could impact the margins? And I’m thinking about Monterrey, I’m thinking about the mix, the price cost. I think people are just trying to figure out, as you know, one of your competitors had decent leverage yesterday in that segment. Just trying to get a sense of how we should think about the puts and takes on incrementals ’24 versus ’23?
John Garrison: Yes. So, I’ll jump in, and then Julie can jump in. So, at the highest level, from a price cost standpoint, again, our pricing strategy is not going to change. We price to offset material freight and labor cost increases. We are seeing continued inflationary pressures. Our team is working hard to offset that, David. But we do believe that there is pricing and there’s pricing in our backlog for 2024. So, price cost, price cost neutral is what we’ve been driving for. Our job is to control cost, push costs get the price that we need in the marketplace to offset that. So that’s how I’d comment on price costs, no significant difference as we transition from ’23 into ’24. We’ve spoken about Monterrey. Monterrey, as we ramp up over the course of the next 18 months and through 2024.
That does create some inefficiencies with the product line moves. And again, our Q3 forecast the Monterrey team delivered what we expected. They were right on. We expected that in our outlook. We would expect that continuing, David, through 2024 and as we enter into 2025, that’s that 200 basis point overall kind of margin improvement for the Genie business as we go forward. Within that AWP segment, we do need to see, and that’s on us. We do need to see improved performance on our utility segment because that — we did not get leverage. Actually, it was quite negative leverage in the quarter. And so, we need to get that business to that 25% incremental margin target that we set. So, we would expect our utilities business to improve performance from ’23 to ’24.
So that should give us some leverage. And then on our MP business, I mean, they are rock solid, consistent. And we’re going to continue to invest on that. Sometimes our incremental margins above David, our 25% target. Some quarters, it’s below based on where we are from in investment profile, but they deliver consistent strong operating margin performance. And so that’s how I’d answer the question. As you know, David, we’re in the middle of the planning process. We’ll be pushing the team. Obviously, for our cost-out initiatives, we’ll be pushing the team to drive manufacturing efficiency improvements as the supply chain. And again, I think it’s a reasonable assumption to assume the supply chain continues to improve, we’re not all the way back yet but we have seen improvement in ’23.
So, I think it’s a reasonable assumption to say we should see some manufacturing efficiency improvements as supply chain improves and disruptions decline into 2024. So just macro high level from a CEO standpoint, I think that’s how I’d answer the question, David.
David Raso: I appreciate that, and I don’t mean to push on your — maybe your last call here. But maybe the CFO…, David. You will be listening to the call the next time I ask the question.
John Garrison: Yes, I will.
David Raso: But Julie, just so we can frame it. Obviously, utility is hurting right now. But when I think of the size of that business, call it, $550 million, $575 million of revs. Can we see a swing back in that business worth 400 basis points, 500 basis points in that segment year-over-year? Just — I know it wasn’t quite that big a hit for them right now, but for the year.
Julie Beck: I would say that we would expect improvement in the utilities business, which will impact the segment. So, let’s talk about — and so they were — when you think about the margins, we talked about the impact of $0.12 a share in the quarter. And you think about that, that they were significantly below the run rate in Q1 and Q2. So, in Q4, we’re expecting that to come back. And they still have an opportunity. We still want to return this business to low double-digit margins. And we do think that that’s within sight. And so, we’ll continue to strive for that.
David Raso: And Monterrey and the impact, just to think about the path to the 200 bps. What would you expect ’24 versus ’23 that framework? What’s the add ’24 versus ’23?
Julie Beck: So, I would expect that we’ll see disruption. Remember, when you think about it, you think about it, there’s a disruption for the receiving location in Monterrey as well as the sending — but I think that we’ll see that, but the benefit of that is the 200 basis points when we come out of 2025. So, the Monterrey team was right on target, and we’ll continue to work hard to eliminate that — to do better than what we’ve guided to, and we’ve talked about that it could be somewhere between $10 million and $15 million impact in 2023. And we would expect some of that to continue into 2024.
David Raso: And lastly, for me, any broad thoughts with Simon to think about where the balance sheet is. I mean I would argue Terex’s balance sheet is about as strong as we’ve ever seen it. So just trying to think about any capital allocation commentary that you or Simon or the transition might provide investors how to think about the use of the balance sheet. Thank you.
Julie Beck: Yes. I think from our — so yes, we do have a strong balance sheet. We have ample liquidity. We have $846 million and net leverage is at 0.5 times. And as we discussed, the first thing we like to do is organic growth, and we’re investing in our facilities, in particular Monterrey right now. And those investments are paying off with a 29% return on invested capital. Of course, we’ve talked about even in my prepared remarks, the increase of the dividend and we’ve increased it 31% since the start of the year. So, we’ll do that. And then we’ll look at what we do. It will generate significant cash and we’ll look at whether we do inorganic or share repurchases. So inorganic, we’ve made some smaller investments, and we’ve discussed them earlier.
We have an active pipeline. We’ll continue to look at those. We’ll be disciplined in that process. And we’ll also look at share repurchases. And so, we have repurchased $34 million worth of shares year-to-date at the end of the quarter. We had $159 million remaining on that authorization. Our goal — we always state that we want to offset dilution from incentive comp and also make opportunistic prices. And at these prices, we believe our shares are an attractive investment and we’re out purchasing shares. So, our strong balance sheet allows us flexibility and allows us to invest for future growth.
David Raso: All right. I appreciate the answer. And again, congratulations. Thank you, so much.
Operator: Our next question comes from Tami Zakaria from JPMorgan. Please go ahead. Your line is open.
