Shares of Terex Corp. (TEX) have dipped 4% since the company reported fourth-quarter 2013 earnings on Jan 18 on lower-than-expected guidance. The guidance is tempered with continued market uncertainty, particularly in developing markets. Adjusted earnings of 65 cents per share, however, soared an impressive 282% year over year from 17 cents in the year-ago quarter, mainly due to improved performance in the Aerial Work Platforms (AWP) segment and a turnaround in the Materials Handling & Port Solutions (MHPS) segment.
The results also surpassed the Zacks Consensus Estimate of 49 cents by a wide margin of 33%. Including restructuring and related items, Terex reported earnings per share of 72 cents, compared with the prior-year quarter’s loss per share of 30 cents.
Operational Update
Revenues in the quarter increased 12% year over year to $1.81 billion, in line with the Zacks Consensus Estimate. Growth in AWP and MHPS segments led to the overall increase.
Cost of goods sold increased 8% to $1.43 billion versus $1.32 billion in the year-earlier quarter. Gross profit rose 29% year over year to $386 million. Gross margin expanded 280 basis points to 21.3%.
Selling, general and administrative expenses dipped fell 8% year over year to $254 million. The company reported an operating income of $131 million compared with $23 million in the year-ago quarter.
Segment Performance
The Aerial Work Platforms segment’s revenues improved 31% year over year to $482 million on the back of strong demand in the North American rental channel and economic recovery in Europe. Operating income increased an impressive 126% to $71.5 million from $31.7 million in the prior-year quarter.
The Construction segment’s revenues edged up 1% year over year to $193 million. The segment reported break-even results in the quarter compared with an operating loss of $48.4 million in the year-ago quarter.
Revenues from the Crane segment decreased 6% year over year to $480 million due to weak Australian and Southeast Asian markets. Operating income declined to $25.7 million from $53.9 million in the year-earlier quarter.
In the Material Handling & Port Solutions segment, revenues grew 27% year over year to $529 million driven by recovery in the base port business as well as the commencement of shipping a large portion of the automated port projects. The segment reported an operating income of $26 million compared with an operating loss of $23.2 million in the year-ago quarter.
The Material Processing segment’s revenues were $150 million, down 1% year over year. The segment reported an operating income of $16.7 million, up 3% from $16.2 million in the year-ago quarter.
Fiscal 2013 Highlights
For fiscal 2013, Terex reported adjusted earnings per share of $2.23, up 41% from $1.58 in the prior year, which beat the Zacks Consensus Estimate of $2.14. Including one-time items, earnings per share were $1.79 compared with 68 cents in 2012. Revenues edged up 1% year over year to $7.1 billion, short of the Zacks Consensus Estimate of $7.2 billion.
Financial Position
As of Dec 31, 2013, cash and cash equivalents amounted to $408 million versus $678 million as of Dec 31, 2012. Total debt of the company decreased to $1 billion as of Dec 31, 2013 from $2.1 billion as of Dec 31, 2012. Cash flow from operating activities was at $188 million in 2013 compared with $292 million in the prior year.
Terex initiated a quarterly dividend of 5 cents and also announced a share repurchase program of up to $200 million. During the quarter, Terex purchased approximately 0.8 million shares for approximately $30 million under this program.
Backlog
Backlog of orders to be filled during the next 12 months was around $1.83 billion as of Dec 31, 2013, a 7.5% year-over-year decline. Large port equipment orders for MHPS were not sufficient to offset decline in AWP backlog, mainly due to the timing of orders received from one of its larger rental customers, and lower demand for Crane products.
Outlook
Terex expects 2013 earnings per share in the band of $2.50–$2.80. The company initiated a sales guidance of $7.3–$7.7 billion. Operating margin is expected to be in the range of 7.5% to 8.5% in 2014. The guidance reflects the benefits of internal cost initiatives, capital structure improvements and some growth in projected net sales, tempered with continued market uncertainty, particularly in developing markets. Even though the company expects the global economy to be stronger in 2014, it will be still modest when compared with historic demand levels.
Our View
Terex will realize benefits starting from 2014, from its substantive actions undertaken to adjust the cost structure of the MHPS as well as Cranes and Construction segments. In the near term, strong backlog in the MHPS segment will aid results. The Aerial Work Platforms (AWP) segment is continuing to benefit from strong North American rental channel demand along with improved performance in Latin America and Europe. The sale of its off highway truck business, which is not yet complete will lead to a smaller and more focused Construction portfolio. The company will also benefit from recovery in the construction sector.
Westport, Conn.-based Terex is a global equipment manufacturer, catering to the construction, infrastructure and surface mining industries. The company’s manufacturing facilities are located in the U.S., Canada, Europe, Australia, Asia and South America. It also offers a complete line of financial products and services to assist in the acquisition of equipment through Terex Financial Services.
Terex retains a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include The Manitowoc Company, Inc. (MTW) and Joy Global, Inc. (JOY). While Manitowoc carries a Zacks Rank #1 (Strong Buy), Joy Global holds a Zacks Rank #2 (Buy).
Peer Performance
Reflecting on the performance of Terex’s peers in the fourth quarter, earnings of construction and mining equipment behemoth Caterpillar Inc. (CAT) increased 5% year on year to $1.54 per share, which also outpaced the Zacks Consensus Estimate of $1.29.
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