Terex Q3 2026 Earnings Call Transcript
Terex (NYSE:TEX) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Terex Corporation reported a 12% year-over-year increase in sales to $2.2 billion and a 14% rise in adjusted EBITDA to $286 million, with strong performances in Materials Processing, Specialty Vehicles, and sequential improvements in Aerials.
Order activity surged 53% year over year, with backlog reaching $7 billion and a consolidated book-to-bill ratio of 103%, suggesting a positive outlook for future demand.
The company is refining its full-year outlook, expecting sales between $8 billion and $8.2 billion and adjusted EBITDA of $930 million to $960 million, despite facing inflationary pressures and seasonal challenges.
Significant operational highlights include the expansion of Utilities production capacity and the introduction of new products like the next-generation automated side loader by Heil and hybrid crushing equipment by Finlay.
Management emphasized the importance of operational improvements and strategic initiatives, including the integration of the expanded portfolio and centralized procurement to leverage scale and reduce complexity.
The Aerial segment separation process is progressing, with active engagement with multiple strategic counterparts, although no specific timeline for completion was provided.
The company authorized a new $500 million share repurchase program, adding to the existing $111 million authorization, reflecting a balanced capital allocation strategy.
Full Transcript
OPERATOR
Conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Konop, Vice President of Investor Relations. Drew, please go ahead.
Drew Konop (Vice President of Investor Relations)
Good morning and welcome to the Terex third quarter 2026 earnings conference call. A copy of the press release and presentation slides is 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-Picarello, 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 material 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 of 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.
Simon Meester (Chief Executive Officer)
Thanks, Drew. Good morning and thank you for joining us today. I’ll cover our third quarter performance, the demand environment across our businesses, and our updated full year outlook. I’ll also discuss the process around the separation of the Aerial segment before Jen takes you through the financial results in more detail. At a consolidated level, Terex delivered higher sales, adjusted EBITDA and cash flow in the third quarter versus prior year while expanding margins and further strengthening the balance sheet. Sales of $2.2 billion increased approximately 12% year over year and adjusted EBITDA of $286 million rose approximately 14% on a pro forma basis. Materials Processing and Specialty Vehicles delivered strong performance, Aerials improved again sequentially, and Environmental Solutions continued investing in Utilities capacity to support rapidly growing customer demand.
Consolidated earnings also increased sequentially despite slightly lower sales, demonstrating improving execution and earnings conversion. Order activity improved significantly during the quarter with pro forma orders up 53% year over year and backlog reaching $7 billion. Bookings were higher in all four segments, and orders exceeded sales in Materials Processing, Specialty Vehicles and Environmental Solutions. Consolidated book-to-bill was approximately 103%, which is greater than our typical seasonality, providing an optimistic forward outlook across the portfolio.
Specialty Vehicles continues to provide particularly good forward visibility. Materials Processing backlog reached a two-year high and Environmental Solutions backlog increased from the second quarter. Jen will cover the segment level bookings and backlog trends in more detail later. Turning to slide 4, the underlying demand drivers remain attractive across infrastructure, utilities, power and data centers, while municipal replacement demand supports fire and emergency equipment. In the United States, refuse collection vehicle demand is improving sequentially. U.S. commercial and residential construction remain below historical levels but have largely stabilized, while Europe is mixed.
Turning to execution on slide 5, we’re making progress integrating the expanded portfolio with foundational work across all work streams now completed. More of our attention is shifting towards value capture. The launch of our centralized procurement organization was an important next step. By coordinating sourcing across the enterprise, we can better leverage our scale, simplify the supply base and reduce product complexity. These actions should support our synergy commitments and enhance earnings power over time.
We’re also applying a more consistent execution discipline across the company. As integration activities mature, our focus is increasingly shifting towards operational improvement opportunities. We are deploying proven operating practices, digital manufacturing tools and standardized operating routines to improve throughput, productivity and quality. Early results are encouraging and we see a growing synergy pipeline, as reflected in the results I outlined earlier. That operating discipline supported growth and margin expansion in Materials Processing and Specialty Vehicles, as well as sequential improvement in Aerials and Environmental Solutions.
Demand remains healthy and we are expanding Utilities production capacity to support secular growth. As expected, the expansion created temporary ramp-up inefficiencies that affected near-term profitability. The team, however, is making progress improving production flow, throughput and cost absorption, and we remain confident in the long-term opportunity to accelerate earnings. Alongside these operating initiatives, we continue to invest in our strongest businesses and brands through product development and innovation. Heil recently introduced its next-generation automated side loader for residential refuse collection. It was designed to improve safety, efficiency and productivity while establishing a foundation for fully autonomous operation when paired with our Third Eye digital offering. Finlay also introduced Electro, a new range of hybrid crushing equipment designed to reduce fuel consumption and operating costs while supporting more sustainable customer operations.
Our commitment to product development is also receiving external recognition. Earlier this month, Genie’s next-generation slab scissor lifts were named Product of the Year in the scissor lift and vertical mast category, reflecting our continued focus on quality, productivity and total cost of ownership for customers. The third quarter also marked significant milestones for several of our brands, including the 60th anniversaries of Powerscreen and Genie and the 50th anniversary of Road Rescue ambulances. These milestones reflect decades of customer relationships, large installed bases and application expertise that support repeat purchases, aftermarket growth and enduring brand value. At the same time, we continue to simplify the portfolio and direct investment where we see the greatest long-term opportunity.
The exits from capacity and LayMor further reduce complexity and cyclicality and allow us to concentrate resources on businesses with stronger market positions and more attractive long-term returns. Combined with our cash generation, these actions preserve our capacity to return capital to shareholders. With that strategic and operating context, let me turn to our updated full year outlook. Based on our third quarter results and updated expectations, we are refining our full year outlook. We now expect sales in the range of $8 billion to $8.2 billion and adjusted pro forma EBITDA of $930 million to $960 million, reflecting typical fourth quarter seasonality. The updated outlook reflects our current assumptions for fourth quarter demand, production and cost.
Looking beyond the near term, integration savings, operating improvements and portfolio mix provide a foundation for sustainable earnings growth. Before turning it over to Jen, I want to update you on the Aerial separation process. Since our last update, we’ve made good progress, advanced the carve-out work and moved from evaluating inbound interest to active engagement with multiple strategic counterparties. While the process continues, the team remains focused on serving customers, growing the business and improving performance. Our priority is to achieve a successful outcome that reflects Genie’s strong brand, global footprint and differentiated products, and maximizes value for Terex shareholders.
And given the active nature of the discussions, we will not comment on individual counterparties or establish a specific timeline. Across Terex, our focus remains straightforward: advance operating performance, realize the synergies of the transformed portfolio and translate the strength of our brands and end markets into higher earnings and cash flow. With that, I’ll turn it over to Jen to walk through the financials and our updated outlook in more detail.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Thank you, Simon, and good morning, everyone. Let’s review our third quarter results, starting with consolidated performance on slide 6. Consolidated sales, including specialty vehicles, were 2.2 billion, up 810 million, or 58% as reported on a pro forma basis. Excluding the sale of the cranes and Midwest businesses, sales grew 229 million, or 11.6%, as growth in Aerials, Materials Processing, and Specialty Vehicles more than offset lower sales in Environmental Solutions.
Adjusted EBITDA margin was 13% compared with 12.8% on a pro forma basis in the prior year. Adjusted EBITDA rose 35 million to 286 million, supported by higher sales, operational execution, and realized synergies, which more than offset year-over-year tariff and inflation headwinds. Adjusted diluted EPS was $1.50. Higher volume, synergies, and operational execution drove improved earnings, while working capital efficiency supported stronger cash generation.
As a percentage of sales, net working capital was 15% compared to 18.1% a year ago. On a pro forma basis, primarily driven by lower inventory and the merger with revenue, we generated 241 million of operating cash flow and 209 million of free cash flow during the quarter. Capital expenditures of 32 million included maintenance and growth investments aimed at increasing production at select sites, efficiency, and safety. Net debt at quarter-end was $2.2 billion, including $407 million of cash on hand, and net leverage was 2.3x net debt to 12 months adjusted EBITDA.
During the quarter, we returned $91 million to shareholders, including $72 million of share repurchases and $19 million of regular cash dividends. In addition, we paid down $113 million of debt. Finally, the board approved a new $500 million share repurchase authorization, adding to the $111 million remaining under our prior authorization as we exited the third quarter, for a total of $611 million. The new program provides management flexibility to remain opportunistic within a balanced capital allocation framework.
Turning to segment performance, starting with Environmental Solutions on slide 7, Environmental Solutions sales decreased 35 million, or 8% from the prior year, to 400 million. The decline was driven by industry channel adjustments in refuse collection vehicles, partially offset by healthy demand and higher shipments in Terex Utilities. Utilities sales benefited from the expansion at the Birmingham facility. Waukesha is transitioning from a service center to a full installation facility.
The segment reported an adjusted EBITDA margin of 15.3%, down 390 basis points year over year. The decline was primarily due to the unfavorable mix from high Utilities sales, inefficiencies related to the Waukesha production ramp, and lower volume absorption in ESG. Moving to Materials Processing on slide 8, Materials Processing sales grew 11.3%, or 44 million, to 434 million, driven by healthy equipment utilization and demand, particularly for mobile crushers and screeners in the U.S., supported by infrastructure, data center, and other construction projects. Adjusted EBITDA margin expanded 530 basis points to 19.3%, driven by higher shipment volume, favorable mix, price, cost discipline, and improved absorption related to higher production volumes.
Turning to Specialty Vehicles on slide 9, Specialty Vehicles sales rose 49 million, or 8.1%, to 657 million, driven by increased sales of fire apparatus and, to a lesser degree, recreation vehicles. Specialty Vehicles adjusted EBITDA margin improved 300 basis points to 16% compared with last year, supported by favorable mix, operating efficiencies, and price/cost discipline, partially offset by inflationary pressures. Turning to Aerials on slide 10, Aerials sales grew 32% year over year to 709 million, driven largely by national account demand in the U.S. associated with large infrastructure projects. Adjusted EBITDA margin was 8.7% in the quarter, down 180 basis points from the prior year when tariff impacts were lower, but 300 basis points higher versus the second quarter due to higher production volumes and cost reduction actions. Mitigation actions were partially offset by unfavorable customer mix, tariffs, and other inflationary pressures.
Turning to bookings on slide 11, consolidated third quarter bookings were 2.3 billion, up 781 million, or 53% year over year on a pro forma basis, with growth across all four segments. In addition, the bookings for all segments are trending up, providing us with an optimistic outlook for future demand. In Environmental Solutions, the timing of the bookings explains the modest sequential sales increase outlook for the fourth quarter. Segment bookings increased 14% year over year to 445 million, led by 36% growth in ESG, where bookings reached a seven-quarter high as refuse collection vehicle orders improved for a second consecutive quarter.
Utilities demand remains healthy, although production ramp-up inefficiencies continue to limit near-term shipments. We’re now seeing our full-year sales outlook for the segment to be approximately flat year over year. In Materials Processing, broad-based demand and a two-year high backlog support our existing full-year forecasts. Third quarter bookings grew 41% on a pro forma basis to 511 million, with gains across each vertical and a notable increase in concrete equipment orders. Backlog nearly doubled to 676 million, its highest level in two years, providing approximately five months of coverage. We continue to expect low double-digit sales growth for the year.
In Specialty Vehicles, demand remains healthy while normal fourth quarter seasonality impacts sequential sales. Third quarter bookings rose 30% year over year to 665 million with growth across all end markets. Notably, backlog grew even as throughput and sales increased approximately 8% versus the prior year, reflecting continued strong demand. To further shorten lead times and reduce backlog, we’re expanding capacity in a measured way, with the first units from the newly expanded Brandon facility expected to ship in the fourth quarter.
Fourth quarter sales are typically lower because of fewer inspections and delivery days around the holidays, and we expect the typical approximately 15% sequential decline. Our high single-digit full-year sales growth outlook remains unchanged despite the impact of the capacity Lemor divestiture. Finally, in Aerials, large project orders and higher backlog support our full-year sales outlook. Third quarter bookings rose 194% year over year to 646 million, primarily attributable to national customers serving large infrastructure projects. Backlog increased 455 million from the prior year to 852 million, supporting confidence in future demand. Based on year-to-date results and current bookings and backlog, we’re maintaining our prior outlook for low double-digit revenue growth, which we approximate as mid-teens.
Now turn to slide 12 for our updated 2026 consolidated outlook. Our outlook incorporates the current portfolio, normal fourth quarter seasonality, the Environmental Solutions production ramp, tariffs, and overall inflationary environment. It excludes costs to achieve synergies, purchase accounting adjustments, and other nonrecurring items. Today we are refining our full-year outlook. We now expect 2026 pro forma sales growth of approximately 8% at the midpoint, with sales ranging from 8 billion to 8.2 billion.
Stronger year-to-date performance in Materials Processing and Specialty Vehicles, together with realized synergies, is partially offset by lower near-term expectations in Environmental Solutions and fourth quarter seasonality in Aerials. Pro forma EBITDA is expected to grow approximately 10% year over year to a range between 930 million and 960 million, excluding the capacity Lemor divestiture, representing an 11.7% EBITDA margin at the midpoint.
Our EBITDA outlook includes approximately 28 million of realized synergies, in line with our commitment at the beginning of the year. We anticipate interest and other expenses to be approximately 180 million, based on average debt outstanding of 2.6 billion. The effective tax rate for the full year is now 19%, benefiting from effective tax planning. This results in expected 2026 EPS of $4.80 to $5.00, including the typical seasonal step-down in the fourth quarter.
Finally, we’re raising our free cash flow outlook to $360 million to $400 million for 2026, reflecting net working capital efficiency and an updated capital expenditure outlook of 145 million for the full year. With that, I’ll turn it back to Simon for his closing remarks.
Simon Meester (Chief Executive Officer)
Thanks, Jen. The economic environment remains dynamic, with tariffs and inflation creating meaningful pressure across the industrial sector. Even so, we delivered on our third quarter commitments. Materials Processing paired growth and margin expansion with a two-year high backlog, and Specialty Vehicles executed strongly against healthy demand and backlog while tactically increasing capacity to reduce lead times. In Environmental Solutions, increasing bookings and the Utilities capacity expansion create a path to better shipments, margins, and cash generation.
Our operational priorities are straightforward: execute our improvement plans, capture the benefits of integration, and convert strong demand into higher earnings and cash flow. Delivering on those priorities will create meaningful value for our shareholders. I want to thank our team members for their work, our customers, dealers, and suppliers for their partnerships, and our shareholders for their continued engagement. And with that, we’ll turn the call over to the operator for questions.
OPERATOR
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one. To withdraw the question, press star one. Again, we ask that you do pick up your handset when asking a question to allow for optimum sound quality. If you’re muted locally, remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Angel Castile with Morgan Stanley.
Your line is open. Please go ahead.
Angel Castile (Analyst)
Hi, good morning. Thanks for taking my question. I just wanted to unpack a little bit more of the margin progression here. Just if you could help us understand, I guess, margin expectations by segment in the fourth quarter. I guess in a normal environment for legacy Terex, I would have said sequential kind of move in EBITDA makes sense. But I think just when I look at the current backdrop, I think most of us, maybe outside of seasonality, expected a little bit more improvement in the fourth quarter.
So just a bridge by segment there would be helpful and just any color as to, you know, the specific factors, perhaps in quantifying those—like what persists into 2027, what is more kind of near term and perhaps abates a little bit. And just how should we be thinking about what to underwrite in terms of the run rate or the exit rate of this year for 2027.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Hey, Injun, good morning, this is Jen. So to your question: yes, typically we see a Q3 to Q4 seasonal step down in our EBITDA margin. Two of our four segments are shipment-related and driven by seasonality like Aerials and SV because of the holidays and the factory shutdowns and also the nationals’ demand in terms of when they ship. Then in the MP and the ES segment, we expect that there’s going to be higher revenue in Q4 versus Q3 that will drive additional margins.
However, for MP, the unique one for Q4 is that there’s going to be unfavorable product mix, a little bit more material handling and concrete, so you’re going to see a little bit more step down from Q3 to Q4 for Material Processing. And our full-year outlook here also includes the additional freight inflation that we saw in Q3, and then we’ll bring that into Q4. Your second question is how much of that will be discrete and how much of that will be carried forward. What we see here is that the inflation—it’s a timing issue whereby we’re taking proactive actions either from a cost mitigation standpoint or from a price flow-down to the customers as a surcharge. So that generally will have a three to nine months lag across depending on the different business dynamics.
And the other one: in Q4, we also do expect that the ramp-up inefficiencies in our Waukesha facility that Simon mentioned in the prepared remarks to continue from Q3 into Q4, and that will ease out and we will come out from that in 2027, early part of 2027.
Simon Meester (Chief Executive Officer)
Yeah, I would just add, if you look at Q3, I think all four segments are really well positioned for continued margin expansion going forward in 2027. We’re obviously not guiding today for 2027, but I would just add that maybe MP and SV had a few one-timers in the quarter, so I wouldn’t quite baseline it on their Q3 margins. But other than that, all four segments I think are well positioned, especially ES, to continue to expand margins going to 2027 because we have a very healthy backlog and strong bookings.
So volumes will be a nice tailwind for us in 2027.
Injun
Thank you. And actually that’s a nice dovetail into my follow-up, which was just related to ES. I guess I’m a little bit confused there. It sounds like the lowered volume—maybe there was a little bit of shipment move from 3Q to 4Q in the refuse side of the business. But utilities, it sounds like that’s maybe what’s driving a little bit of the inefficiencies or lowered top-line guide. Just how do we reconcile that with the bookings? That was the strongest we’ve seen in, I think, over three years.
Just help us understand the cadence into next year. It sounds like, again, some of that is just inefficiencies and timing. But if refuse is also seeing kind of good uplift and demand, what is that telling you in terms of the ability for that to grow or the magnitude of that growth into 2027?
Simon Meester (Chief Executive Officer)
Yeah, you said it. Inefficiencies in utilities and timing of bookings in ESG. You may remember that we had initially assumed at the start of the year that there would be some tailwinds coming in terms of pre-buys because of the change in engine regulations in 2027. A lot of that is now grandfathered well into 2027. So some of those pre-buys kind of dropped out of our bookings forecast. We do see sequentially strong pickup in ESG bookings coming out of the channel adjustments that kind of drove some of the corrections at the beginning of the year.
So I would just characterize it as: we initially anticipated a V-shaped kind of recovery; now it’s going to be more of a U-shaped recovery. That’s why we feel good about ESG—and utilities for that matter—going into 2027. But it’s just going to be pushed out by another quarter, and that’s what is driving the guide.
Injun
Thank you.
OPERATOR
Your next question comes from the line of Mick Dobre with Baird. Your line is open. Please go ahead.
Mick Dobre (Analyst)
Yes, good morning, everyone. I gotta admit, I’m a little bit confused with the guidance relative to your commentary here. It does sound like Q3 was maybe not all that different from what you were expecting. If anything, maybe MP, for instance, did a little better, and Specialty Vehicles too. But we’ve taken 30 to 40 million dollars out of the EBITDA guide, so that’s all coming from the fourth quarter. Can you be a little more specific in terms of, okay, all these EBITDA dollars—which segments are they really coming from?
Is it more evenly spread or are there a couple of segments that are really bearing the brunt of this?
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Hey, Mick, good morning. This is Jen. So yes, our Q3 performance came in largely in line with our expectation. Very strong performance, three of our four segments securing double-digit EBITDA. What you mentioned here in terms of the revised guide on the EBITDA—that’s largely, I would call it, 50% driven by the change in the mix of our segment. Like I mentioned in the prepared remarks, we are reducing the top line for ES from low single digit to flat, and we’re increasing a little bit in Aerials to mid-teens. So that explains about 50% of the volume changes from the segment mix.
Then another 25% is driven by higher freight, like I mentioned earlier to Angel, that we have incurred in Q3 and we expect that to continue into Q4. That’s the big change versus the prior guidance. And then the remaining 25% is driven by the TU ramp-up inefficiencies and us excluding Capacity and Lamor from our Q4 guidance just because of the divestiture announcement that we made in the earlier part of last week. So those are the three big drivers.
Mick Dobre (Analyst)
That was really helpful, thank you for that. Then I wanted to ask a little bit about your free cash flow as well. It’s a little unusual for me to see the free cash flow guide go up while having to trim EBITDA. So maybe talk a little bit about that in terms of working capital management—maybe a general framework for how we should be thinking about Terex as we think about 2027, 2028. What do you see as the natural working capital level for the company?
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Yeah, and thank you, Mick, for asking the question. I’m very pleased with the operational and free cash flow performance that we have done in Q3, which allowed us to deploy the share repurchase opportunistically. We are driving the low capital intensity that we think we will through all our strategic portfolio transformation that started with the ESG acquisition and then the REV merger, pruning our business, including the Queens divestiture that we did late last year and now with Capacity and Lamor.
So in terms of our 2026 priority, I’ve been always very clear that we want to do it with a very staged approach. First half of the year is always making sure that we have a very strong balance sheet, and then the second half of the year is spent to make sure that we return value to the shareholders, which is what we are exactly doing. While we are not providing the guidance into 2027 and 2028, I expect that we continue to drive working capital to be lower.
We continue to make sure that we optimize our CapEx and then continue to return shareholders’ value through either dividends, share repurchase, or organic investments.
Mick Dobre (Analyst)
All right, appreciate it.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Thank you. Thanks, Mick.
OPERATOR
Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Please go ahead.
Jamie Cook (Analyst)
Hi, good morning. I guess my first question is within Specialty—can you speak to what you’re seeing within that business in terms of the fire business? Specifically, where some of your peers have been—I think your growth has been much better than some of your peers, and also your margin performance was pretty good. So any color you can give on what you’re seeing there and your confidence that fire can grow into 2027 and anything you’re seeing on market share?
And then my second question—again, set up for 2027. Simon, you sound fairly positive, but I’m just trying to understand where price, as we look at the backlog—what’s priced effectively versus sort of underwater as we look into 2027. It sounds like Aerials is the biggest issue, but I’m just wondering if price/cost should start to improve more in 2027 with pricing actions you’ve taken in recent bookings. Thank you.
Simon Meester (Chief Executive Officer)
Yeah, thanks for the question, Jamie. So on SV, we’re very pleased with the bookings. Bookings coming in strong—backlog actually going up again a little bit sequentially in SV. It’s still very much all about trying to bring lead times down for us, so that’s why we’re tactically expanding capacity in two locations, in Brandon, South Dakota, and in Ocala, Florida. Basically, we’re trying to address specific categories with higher-than-average lead times with those investments, and we expect the first units to be built this quarter in Brandon and then in the second quarter of 2027 in Ocala.
In both places, we expect that capacity to be at mature rates by the end of 2027. So it’s still very much for us a story about trying to bring the backlog down. We think a sustainable lead time for this industry is about 12 months, and we’re well over 24. We see strong underlying demand. We still see a lot of municipalities replacing aged units, and we do have a couple of offerings in our portfolio, like our semi-configured pumper, that is a low lead-time item that is just picking up in popularity because it’s a unit that we can deliver in eight months as opposed to the average 24 months.
So we’re pleased with how things are evolving in SV, but it’s still very much just a matter of us trying to get our lead times down from 24 months to 12. Then in terms of inflation—obviously it’s top of mind for us for 2027. And Jen, keep me honest here, but we are not operating under the assumption that inflation is all of a sudden magically going to get much better in 2027. So we are preparing ourselves for at least kind of a flat year-over-year, in terms of percentage, continuation of inflation going into 2027. Now, again, we’re not guiding for 2027, but we’ve always said, and we continue to say, that our aim is to be price/cost neutral.
That is our starting point, and we will try to offset as much as we can ourselves and mitigate as much as we can ourselves. But at some point we’ll have to be disciplined and pull the pricing lever as well in order to get to that ambition of price/cost neutrality. So still an active process as we continue in the quarter, and we expect to provide some more clarity on that when we start guiding for 2027 in February.
Jamie Cook (Analyst)
Thank you. I appreciate the color.
Simon Meester (Chief Executive Officer)
Thanks, Jamie.
OPERATOR
Your next question comes from the line of David Rosso with Evercore ISI. Your line is open. Please go ahead.
David (Analyst)
Hi, thank you very much. I appreciate you don’t want to call out any potential buyers on Aerials, but if you can just indulge us in a bigger picture view of what’s developing with the carve-out work, is there really anything left to do there? And then is the holdup on the sale more regarding buyers, what they’re asking for regarding the structure of the deal, or is it just simply a debate on price? And then also the share repo authorization, you have a total now of 611, the authorization timing and also the size of it. I’m just trying to think through the use of the proceeds eventually from the sale of Genie. The authorization struck me as a little low and I’m just trying to figure out, is that a signal, a little bit of use of the net proceeds? I mean, this kind of number feels like it’s almost 50/50 debt versus repo, and I’d argue investors are probably leaning a little more wanting repo.
And I just wanted to make sure we’re reading into what you’re describing today.
Simon Meester (Chief Executive Officer)
So I’ll take first. Jen, you want to take the second question on the share repurchases. So yeah, on the Genie, on the Aerials process, as I said, we made good progress in the last couple of months in terms of advancing our carve-out work. You know, Aerials has been part of Terex for 25 years, so there’s obviously a lot of structure, a lot of legal entities associated to this segment that required quite substantial carve-out work, and we’ve been making good progress on those.
In terms of process, David, I’m not going to comment on who the multiple strategic counterparties are. I’m not going to comment on the nature of the discussions. I don’t think that serves the best interest of our shareholders. I’m going to pass on that particular question.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Yeah. And David, I think your two follow-up questions on the carve-out work, I’m very pleased to say that we have done a lot of the work upfront in, I would call it, the last nine months. As you know, the Aerials business has been as part of Terex for a while, and the legal entity that we are untangling, we have done a lot of that work and are very comfortable with where we are in the process right now. Your question on share repurchase, I think it’s too premature to say anything.
The 500 million of share repurchase authorization there is just on our normal course of business. We have deployed 72 million to share repurchase in Q3. We expect that share repurchase will remain part of our disciplined capital allocation framework, and we will continue to opportunistically repurchase shares. That’s with or without the RSO. So I wouldn’t say you want to read too much into it.
David (Analyst)
All right, that’s helpful. Thank you very much.
Simon Meester (Chief Executive Officer)
You’re welcome. Thanks, David.
OPERATOR
Your next question comes from the line of Mike Shlisky with D.A. Davidson. Your line is open. Please go ahead.
Michael Shlisky (Analyst)
Hey, good morning. I was under the impression that you weren’t going to be doing much commercial divestitures until you got the Aerials deal done. But you did just divest Capacity and LayMor the last couple of days. I guess I’m kind of curious if there are any other areas you might look to divest, RVs or other small businesses that you currently still own between now and when Aerials may get addressed?
Simon Meester (Chief Executive Officer)
Hey Mike, good morning. Thanks for the question. Yeah, we are at the tail end of the integration of our new SP segment, which required a lot of work. We’re obviously also in active discussions around our Aerials segment. So we have kind of a full slate at the moment. Now, the Capacity and LayMor was a relatively small transaction, but I would just leave it today as in we will continuously assess the effectiveness of our portfolio, and some of that will be opportunistic in nature.
But at the moment we’re focused on those two main large work streams that I called out just now. But yeah, we will always look for opportunities to continue to optimize, and we are committed to our strategic objective of building a highly synergistic, high-mix, low-volume portfolio. And so we’ll always be looking for opportunities to further improve.
Michael Shlisky (Analyst)
Okay, great. And then my follow-up was, you called out those two businesses, Capacity and LayMor, as part of the reason for the EBITDA reduction for the full year, mostly in the fourth quarter, of course. I never thought those are that big of businesses that generated that much. So can you just help us figure out for our modeling for 2027 whether there’s a pretty decent-sized number or halfway important number we should be taking out of our models for 2027 for those businesses?
And whatever cash you received, will this be plowed right back into the share buyback here in the fourth quarter?
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Yeah. Hey Mike, you know, I think you’re familiar with the Capacity and LayMor businesses. Overall, on an annualized basis through cycles, anywhere between 125 to 150 million of top line revenue. And we have always said that is in the mid single-digit to high single-digit EBITDA. So you could use that to adjust out your model. I think your second question is on the sales proceeds and how we’re going to deploy that cash. Again, we will make sure that we exercise a very disciplined capital allocation framework.
In fact, we have received the cash already, so we absolutely are looking into that right now.
Michael Shlisky (Analyst)
Thanks so much.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
You’re welcome.
OPERATOR
Your next question comes from the line of Kyle Menges with Citigroup. Your line is open. Please go ahead.
Kyle Menges (Analyst)
Thank you. In your presentation and in the prepared remarks you mentioned the F&E fleet. Sounds like it’s still aging. Good replacement demand from municipalities. Would just love to hear just a little bit more color on what you’re seeing in that market and in that fleet — if it is really aged — and I guess just didn’t really see too much pull-forward related to COVID stimulus, or perhaps we did. Would just love to hear some more color there.
Simon Meester (Chief Executive Officer)
Hey Kyle. Kyle. Did you say SV? Specialty vehicles?
Kyle Menges (Analyst)
I guess Fire and Emergency.
Simon Meester (Chief Executive Officer)
Okay, thank you. I wasn’t sure because we cover municipalities with multiple segments. I just wanted to make sure I heard you clearly. As I said earlier, we’re very pleased with how the bookings continue to come in. We are very focused on just building as many trucks at the highest possible quality as we can, basically at this point to keep up with the backlog and with the bookings trend until we have additional capacity coming online. We’re also very surgical with our capacity because obviously we don’t want to all of a sudden have idle capacity in our network either. So that’s why we are addressing specifically the categories with higher-than-average lead times.
But yeah, to your point on the bookings, I don’t think there is a particular silver bullet here other than we just continue to see municipalities that are coming in with replacement demand that have been running their fleet a little longer than they initially expected. And then, you know, I don’t want to make any comments on market share, but we do get some good pull from the market on our lower lead-time solutions that we’re offering, as I mentioned earlier, with our semi-configured pumper.
So it’s probably a mixed bag of those variables.
Kyle Menges (Analyst)
Got it. And then just to follow up on the Aerials sale process and that carve-out work, I’m curious how much more carve-out work there is to be done and are you confident in getting that wrapped up by year end?
Simon Meester (Chief Executive Officer)
Yeah, I’m not going to put any timing. You know, we’re running a disciplined process here. We’re committed to the process. We’re focused on value, we’re focused on execution, we’re focusing on certainty. Yeah, a lot of that carve-out work is behind us, but I don’t want to start getting into any kind of timing or deadline commitments. The focus for us is on discipline and making sure that we maximize value for our shareholders.
Kyle Menges (Analyst)
Thank you.
OPERATOR
Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead.
Jerry Revich (Analyst)
The margin execution and the orders have both been, I think, well ahead of plan this year. And when you folks made the acquisition, based on the pipeline, you spoke about multi-year margin improvement opportunity in the business. And so obviously we’ll hear more about 2027 in about three months, but any changes to how you’re thinking about the margin upside relative to what you laid out at the time of acquisition, given that performance to date?
Simon Meester (Chief Executive Officer)
Yeah, I mean, thanks for the question, Jerry. I need to give the team a lot of credit here because Legacy REV laid out their EBITDA commitments in their Investor Day for 2027. And not only did they achieve that goal a year early, they also achieved the high end of their 2027 guide, which was 14 to 16% EBITDA. Now, having said that, there’s a few one-offs in their Q3 that Jen spoke about that you shouldn’t anchor to necessarily. But we’re very, very pleased with the way the team is executing, and we mentioned this when we announced the merger, that the leadership team that was running that particular segment is still running that segment today, and they’re doing a great job in terms of execution.
We do expect, knowing there is a $4.4 billion backlog, to continue to drive productivity, to continue to drive down hours per truck. So we definitely do see opportunity for sequential improvement. And by the time we get to our guide, we’ll be able to be a little bit more specific on what that means for 2027.
Jerry Revich (Analyst)
Okay, super. And then can I ask in Environmental Solutions, obviously a transition year for Utilities and, you know, lumpy production in Heil. As we think about the margin opportunity, 2027 plus, are we thinking about the 19% or so margins that we were able to hit in 2025 as doable in the medium term? Just wondering to what extent are some of the transition issues we’ve spoken about this year potentially lingering into next year?
Simon Meester (Chief Executive Officer)
Yeah, so if you look at the Q3 EBITDA margin of 15%, even with EBITDA ESG being at a, let’s just call it, a bottom, they were still at the higher end of that number. And so Utilities was below the average because of the inefficiencies in the ramp up. The reason we feel really good about that segment is for two reasons. First of all, bookings are picking up in the highest EBITDA margin of that particular segment, which is ESG. And secondly, we know that these headwinds, when you ramp up a new facility — it’s basically a completely new facility a couple of states over from our Watertown facility — and we have added already 25% more unit capacity in 12 months alone. We’re building 250 trucks more in that facility in just 12 months and then we want to go for another 250 trucks next year.
So just picture the startup cost associated with increasing your capacity by 25% in just 12 months. So we feel very good about the way we have set ourselves up for future growth. And yeah, it comes at a little bit of a speed bump in Q3, but a business that does high-teens EBITDA margin and then calling that a speed bump — I’ll take that any day of the week. So I think both Utilities and ESG are very well positioned for 2027.
Jerry Revich (Analyst)
Thank you.
OPERATOR
Your next question comes from the line of Stephen Volkman with Jefferies. Your line is open. Please go ahead.
Stephen Volkman (Analyst at Jefferies)
Good morning, guys. Just a couple quick follow-ups from me, Simon, on that last point. How do we think about the sort of quarterly cadence of the Utilities ramp up? I’m sorry if I missed this, but I’m trying to think about when exactly these headwinds to margin go away.
Simon Meester (Chief Executive Officer)
You want to take that?
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Yeah, you see this, Jan. So, right now, based on our revised guidance, we expect that the ramp-up inefficiencies in the Waukesha facility to continue into Q4. And then, when we exit out of Q4 into 2027, we expect that to normalize. And again, like what Simon mentioned earlier, the ramp-up of the units in a new facility that historically has been a service facility, and we repurposed that to an in-source facility, that’s actually creating some of those headwinds.
And I just want to add—and I didn’t mention this so far—is that we are now also starting to build utility trucks in our Fort Payne facility in Alabama. So that gives us another kind of tailwind in terms of how we can manage absorption in our probably most competitive plant in our network, which is the ESG facility, the Heil facility in Fort Payne. So we’re now building utility trucks in Fort Payne as well, so we can flex between refuse demand and utility demand in our Fort Payne facility, which is a very competitive facility for us.
So we don’t see a major impact because, first of all, most of that is just passed on. We don’t take the title on those chassis. They’re purchased by our customers and directly invoiced to our customers. For us it’s more of a timing issue. And as I initially said, in Q2 we were assuming that there were going to be some pre-buys in the second half, and we don’t see those pre-buys now happening. We see more of a back to a kind of a normal demand pattern. We see most of the channel adjustments are behind us. We see sequential improvements in bookings combined with what we see in fleet utilization. The fleets have been rationalized and are back up at normal utilization. So we now see the path cleared for more normal sequential growth in ESG.
It’s still an essential service. So, you know, America hasn’t started producing less waste. I mean, that’s still a very consistent growth pattern. It’s more like how the fleet has been flexing based on supply/demand purely on vehicle manufacturing. But yeah, back to the engine regulations. Some of the engines have been pushed out to April. They need to be built by April, serialized by July. And some of that will take effect on the timing of bookings. But other than that, financially, it’s just passed on to our customers.
OPERATOR
Your next question comes from the line of Tammy Zachariah with J.P. Morgan. Your line is open. Please go ahead.
Tammy Zachariah (Analyst)
Hey, good morning. Thank you so much. I wanted to follow up on Steve’s question earlier. Given there will be non-compliance penalties on truck engines next year, are you preparing to reprice the backlog, or was some level of penalties and higher engine cost inflation already embedded when those orders were placed? Or is it that your customers buy the trucks directly from the OEMs and then you just upfit it for them so the penalty will entirely bypass you?
So if you could provide some clarity there.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Yeah. Hey, good morning, Tammy. Thanks for the question. Yeah, it’s the latter of what you said. Chassis are bought by our customers.
Tammy Zachariah (Analyst)
Understood, that’s very helpful. And then I wanted to clarify, given all the comments on freight inflation, which of your segments would need to increase prices more than others to remain margin neutral, or does freight impact all segments relatively equally?
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
Yeah, hey Tammy, you know, freight impacts all segments across the board. But I also do want to mention that we actually pass through a portion of the outbound freight to our customers. So, like I mentioned, there’s going to be a timing effect of when we incur it to when we flow it down to the customers as well. At the same time, we’re taking very proactive actions as part of our sourcing synergy workstream to actually optimize and reduce our inbound freight costs, either by scaling and renegotiating those contracts, identifying new carriers, and also providing a single pane of glass to more digitization so that we can optimize the lanes and those ocean freights internationally. But I would say that that’s across the board.
Tammy Zachariah (Analyst)
Understood. Thank you.
Jennifer Kong-Picarello (Senior Vice President, Chief Financial Officer)
You’re welcome.
OPERATOR
We have reached the end of the Q and A session. I would now like to turn the call back to Simon Meester for closing remarks.
Simon Meester (Chief Executive Officer)
Thank you. Operator, thank you for the questions. If you have any additional questions, please follow up with Jen or Drew. Thank you for your interest in Terex today. Operator, please disconnect the call.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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