John Garrison Jr. took the reins as chief executive officer and president of Terex in November 2015, following the retirement of his predecessor, Ron DeFeo. We had the unique opportunity to meet with Garrison and Matt Fearon, president of Terex AWP, makers of Genie equipment, at The Rental Show in Atlanta. Following is an excerpt from that discussion.
Rental: What is your vision for Terex, now that you've got a couple of months under your belt as president and CEO?
John Garrison: Like many companies, there are some things we do very well and some things that need continuous improvement. I'll bring in a more intense focus on the operating side of the business. I fundamentally believe that a business strategy should be centered around products and services. How do we create a competitive advantage for our customers? I think if you look at Genie, we've done a good job of actively listening to the customer and coming up with products and services that meet their needs.
I've spent most of my life working with capital goods and cyclical businesses, so I know all about cycles. One of the things I have learned is it's important to invest throughout the economic cycle. We have things to do across Terex to improve our cost structure, but one of the areas we won't sacrifice is our product and service development. I'm a firm believer in investing because ultimately, cycles are hard to predict. It's important to acknowledge our business is cyclical, but we need to continuously invest in our products and services. The Genie brand is a global leader and we continue to work on that globalization. To be a global leader we need manufacturing locations beyond just Redmond and Moses Lake, WA.
In capital goods, you always have to be getting better. If you're not getting better, you're getting beat. There's no in between. We're focusing on that relentless pursuit of improvement in all aspects of our business. That's the fun part, the challenge of figuring out how to get better. I think Genie has done a good job with that. It's really the same focus across all of the segments of Terex, and we're applying that same discipline and rigor to all of them.
Rental: How would you characterize the biggest difference between you and your predecessor, Ron DeFeo?
Garrison: We have to start by acknowledging the amazing job that Ron did - 23 years as CEO of Terex. Ron created this global enterprise and he did a heck of a job. There were a lot of acquisitions over time, whereas now we're going to focus on the operating side; running the business that we have effectively. We'll also make bolt-on acquisitions where they make sense to drive growth. There are two fundamental tenets the team knows. First is the importance of safety. What our customers do puts them in harm's way. So we drive a culture of zero harm. The safety side is very important both operationally and also with our customers. If you look at Genie, what they do is innovate to enable our customers to work at height and do it safely, every single time. So taking that focus on safety all the way back through the organization is one of our key focuses. The other one is really listening to the customers. It's a global world and our business is very complex. But when things get really complex, I always focus on distilling things down to something simple: We're all customers. If we focus on the needs of our customers and we do it safely, good things will happen. Lastly, we are competing in a hyper-competitive global marketplace. We need to have a cost structure that enables us to compete to get a return on invested capital, to win in that marketplace. We can do it.
Rental: What is the state of the aerial industry? How do you see 2016 shaping up?
Matt Fearon: In our last earnings rerport, we said we'd be down 10-15 percent this year. That's driven mostly by the North American market for Genie. But there are other global markets that are flat. The only two that are really rising are Europe and China. The North American market is starting to slow down... from a manufacturer's perspective (that's a key point). Part of it is because of the cyclical replacement of fleet. Rental companies are starting to replace those 2008, 2009 and 2010 populations of machines and they just don't have a lot of them. They didn't buy much during those years. And building their fleets back up from those years is what's been driving the industry growth for the past few years, so we see that naturally coming down.
That being said, construction is still good. Look at the indicators, they're still healthy. Residential and nonresidential construction forecasts are positive, but from a manufacturer's perspective, we're going to feel that dip. It is not 2009, I keep telling everybody that. This is a dip that we anticipated. We've been looking at our forecast models, knowing that it's coming. In my opinion, the decline in oil prices in North America did throw a curve ball at the North American rental companies. They had to take that fleet out and move it around so their utilization dipped, and they're really watching their metrics. As much as you'd love to have growth every year, I love it that the rental companies are paying such close attention to how their fleet is being utilized. The industry is still healthy. A lot of people want to overreact and say that it could be getting worse than it is. We're not doom and gloom. We've been through the cycles before and we realize you can't just sit back. You've got to make the move when you get into these little troughs. It's not a major reset.
Garrison: I think oil and gas has had an impact, but it's more like a multiplier effect. It wasn't just the equipment at the well head that was affected. When you go out from the well head you see a lot of infrastructure, construction and a need for schools and hospitals that blossomed out from the well head, or from the fracking site. The multiplier effect caught us a little off guard, and that's now working its way through the system. Everybody's adjusting to that. It was a very good market for a very long period of time. It came down abruptly and that's hard, but we're working our way through it, and so are our customers. I think it will stabilize. There's also the other side of the equation... there's got to be some benefit to gas being only $1.50 per gallon. It helps the rental industry. I think it's going to help us all in the long run. It will take some time to generate back into the market. When will it transcend into buying habits? That's the big question, but I think it will happen.
Rental: What's going on with the Terex merger with Konecranes and the offer from Zoomlion?
Garrison: On the Konecranes side, Terex and Konecranes entered into a business combination agreement to merge the two companies as equals. The board of directors of Terex has not changed its recommendation. We continue to proceed with required anti-trust filings in the US and the EU and 7-8 other countries. We've received approvals from a couple of the smaller countries and that work continues. The work on all the files required for securities, shareholders and FCC continues. We did make a decision to pause the detailed integration planning for the time being because frankly, we were pretty far ahead of where we needed to be. On the Zoomlion side, they have made a non-binding, cash proposal to acquire Terex for $30 per share in cash. The Terex board and management is evaluating that offer with our legal and financial advisers to ascertain what would be in the best interest of Terex shareholders, so that analysis is ongoing. And I really can't comment beyond that.
I will say that Zoomlion has said they do not want a hostile takeover. They only want the deal to work on mutually agreed upon terms.
Rental: Which scenario would you prefer?
Garrison: I respect the question, but I can't comment.
Rental: Is there anything else you'd like to let our audience know about what's going on at Terex and Genie?
Fearon: Genie's 50th anniversary is a big deal and it's something we plan to celebrate all year long. We have a storied past worth acknowledging. Look at our tag line: "50 years of Building the future." When you look back at the roots of Genie, they really center around innovation, outstanding products and a commitment to continuous improvement. Those things created a culture, which is one of the things I really want to preserve. There's something about Genie's culture that's different and our customers are attracted to it, our team members are attracted to it. I want to hang onto that, but at the same time, I want to move the company forward another 50 years. Over the last few years we've been putting out a lot of innovative products and we'll continue to do that. Those foundation pieces that we built over the first 50 years are what we're going to use to propel us into the future. I'm really excited about it.
Garrison: It is a momentous occasion. The world is filled with brands that don't last. Genie is a brand that's been able to succeed and grow in all sorts of challenging markets. They're not looking in the rearview mirror, they're looking forward and building the future.
