Terex Corp. (TEX) reported third quarter results delivering an adjusted EPS of 30 cents versus a loss of 32 cents in the year-ago quarter. The EPS in the quarter was ahead of the Zacks Consensus Estimate of 22 cents.
Excluding the sale of shares of Bucyrus International, Inc., acquisition related items and certain other items in both periods; EPS was 33 cents in the quarter compared with a loss per share of 84 cents in the year-ago quarter.
Net sales at Terex increased 68% to $1.8 billion from $1.07 billion in the year-earlier quarter, ahead of the Zacks Consensus Estimate of $1.5 billion. Excluding the impact of the Demag Cranes AG acquisition, net sales increased 44%. Adjusting for the translation effect of foreign currency exchange rate changes and the impact of the Demag acquisition, net sales increased approximately 35% from the comparable prior-year period.
Costs and Margins
Cost of goods sold amounted to $1.5 billion versus $911.9 million in the year-earlier quarter. Gross profit increased to $275.6 million from $163.9 million in the year-ago quarter. Gross margins remained flat at 15% in the quarter.
Selling, general and administrative expenses increased 39% to $223 million in the quarter. The company reported an operating income of $52.6 million compared with $3.6 million in the year-ago quarter. Adjusted operating profit was $77.7 million, a substantial improvement from $4.5 million in the year-earlier quarter. Operating margins expanded 390 basis points year over year to 4.3% in the quarter.
Segment Performance
Total revenue at Aerial Work Platforms increased to $448.7 million from $282.3 million in the year-ago quarter driven by improved demand. The segment reported an operating income of $27 million versus $14 million in the prior-year quarter.
Net sales at the Construction segment were $395.4 million versus $284.7 million in the year-ago quarter driven by strong demand for backhoe loaders in Russia, compact equipment in central Europe and trucks in developing markets including Russia and South Africa.
Demand for material handlers continued to increase especially in central Europe. However, demand for roadbuilding products in North America was sluggish due to weak highway infrastructure spending.
Operating loss at the Construction business narrowed to $6.7 million from a loss of $7.7 million in the year-earlier quarter. Results were impacted by lower demand for roadbuilding products, costs associated with restructuring actions and a higher mix of lower-margined compact products.
Cranes reported total revenue of $543.6 million versus $368.7 million in the year-earlier quarter with improvement in demand across all products. Sales in the U.S. more than doubled and demand strengthened in China, India and Germany.
The segment reported an operating profit of $25.9 million versus $3.9 million in the year-earlier quarter. Operating margins showed a substantial improvement of 370 basis points year over year to 4.8% in the quarter driven by increased sales volumes, as well as cost savings from restructuring activities.
Net sales at Material Processing increased to $171.1 million from $143.6 million in the prior-year quarter. Machine and parts sales increased in most markets with the exception of southern Europe. However, weakness was noted in the crushing equipment market.
Segment operating income was $12.4 million, up from $10.3 million in the prior-year quarter. Operating margin remained flat at 7.2% as increased sales volumes, better manufacturing utilization, pricing and cost controls at many of the segment’s facilities were offset by the negative effects of a facility impairment.
Net sales at the Material Handling & Port Solutions segment were $256.0 million, including the results of Demag Cranes AG since August 16, 2011, the date of acquisition. Net sales were driven by strength in Europe, particularly Germany. Increasing demand for industrial cranes as well as for mobile harbor cranes positively impacted net sales in the period.
The segment reported an operating loss of $2.6 million, which included charges of $19.3 million related to the revaluation of inventory as on the acquisition date of Demag Cranes AG and $5.0 million related primarily to the incremental amortization of revalued tangible and intangible assets.
Financial Position
As of September 30, 2011 cash and cash equivalents amounted to $684.9 million versus $702 million as of June 30, 2011. Cash from operating activities was an outflow of $111.2 million in the first nine months of 2011 versus an outflow of $468.8 million in the comparable year-ago period. The debt-to-capitalization ratio worsened to 54% as of June 30, 2011 versus 38% as of June 30, 2011 primarily due to the acquisition of Demag Cranes AG.
Outlook
Management now expects full year net sales in the range of $6.3 billion to $6.5 billion. Full year EPS is projected in the range of 43 cents to 48 cents. For the fourth quarter, EPS is forecast in the band of 20 cents to 25 cents.
Our Take
Terex had been continuously suffering losses since the first quarter of fiscal 2009, affected by the global economic slowdown. Particularly hurt were the Aerial Work Platforms and Construction businesses.
However, the company reversed its string of losses beginning fiscal 2011 first quarter. Even though the other segments have turned around, the Construction segment still remains in the red. However, an increase in backlog and order quotation activity in the quarter hold promise.
With the recent Demag acquisition, Terex will add a new product category of industrial cranes and hoists, and become the leading worldwide player in port equipment. The combined entity will have a strong footprint in Europe and the emerging markets, especially in China, as Demag is counting on capturing the growing demand for cranes in that country, the world’s largest market for industrial cranes.
We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Westport, Connecticut-based Terex Corporation is a global manufacturer of a broad range of equipment for the construction, infrastructure, quarrying, mining, shipping, transportation, refining, energy and utility industries.
The company’s manufacturing facilities are located in the U.S., Canada, Europe, Australia, Asia and South America. It operates through four business segments: Aerial Work Platforms, Construction, Cranes and Materials Processing. Terex competes with the likes of Caterpillar Inc. (CAT), Deere & Company (DE) and Komatsu Ltd. (KMTUY).
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