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On Jul 4, 2013, we downgraded our recommendation on global equipment manufacturer Terex Corp. (TEX - Analyst Report) to Underperform from Neutral based on its lowered guidance, decline in backlog and its exposure to Europe.

Why the Downgrade?

Terex’s first-quarter 2013 adjusted earnings of 23 cents per share declined 21% from the year-ago quarter. Total revenue declined 5% year over year to $1.723 billion.  Terex lowered its guidance for 2013 to $1.90 to $2.10 a share from $2.40 to $2.70 citing softer market conditions in its Construction, Materials Handling and Port Solutions and to a lesser extent Cranes business.

The company noted that positive demand in its Aerial Work Platform and Materials Processing businesses is unable to offset softer overall sales growth. Terex is also worried about continued but slower improvement in North America, challenging conditions in Europe and mixed conditions in rest of the world.

At the end of the first quarter, total backlog stood at $2.17 billion, representing a sequential increase of 8% but a decline of 6% year over year. Strong demand for Aerial Work Platform products was offset by softer demand for Construction, mainly as a result of continued European softness.

Terex witnessed significant global revenue shortfalls in its Materials Handling & Port Solutions business, with particular weakness in Europe and India. The construction business is also reflecting the challenges of a less certain customer base in Europe. Terex has significant exposure (around 30%) to Europe and its results will continue to be affected till conditions improve.

Other Stocks to Consider

Not all machinery stocks are performing as poorly as Terex. We recommend Lincoln Electric Holdings Inc. (LECO - Analyst Report) and Kubota Corporation , with a Zacks Rank #1 (Strong Buy), as better options for investing. Also, Lindsay Corporation (LNN), carrying a Zacks Rank #2 (Buy), is worth considering.

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