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Terex Corp. (TEX - Analyst Report) reported second-quarter 2014 adjusted earnings of 76 cents per share, up 18.8% from 64 cents in the year-ago quarter. Earnings however fell short of the Zacks Consensus Estimate of 80 cents. Including one-time items, Terex reported earnings per share of 76 cents, significantly up from the prior-year quarter’s earnings of 17 cents per share.

Operational Update

Revenues in the quarter grew 10.4% year over year to $2.05 billion from $1.86 billion, beating the Zacks Consensus Estimate of $1.97 billion.

Cost of goods sold increased 8% to $1.63 billion from $1.51 billion in the year-earlier quarter. Gross profit rose 20.7% year over year to $423.8 million. Gross margin expanded 170 basis points to 20.6%.

Selling, general and administrative expenses decreased 1.8% year over year to $262.9 million. The company reported an operating income of $160.9 million compared with $83.5 million in the year-ago quarter.

 

Segment Performance


The Aerial Work Platforms (AWP) segment’s revenues improved 18% year over year to $717.9 million. Operating income increased 12% to $113.5 million from $101 million in the prior-year quarter.

The Construction segment’s revenues went down to $227 million from $228 million in the prior-year quarter. The segment reported an operating income of $4 million compared with the year-ago quarter operating loss of $5.2 million.

Revenues from the Crane segment decreased 3.4% year over year to $503.5 million. The segment reported an operating income of $29.7 million, a 26.9% increase from $23.4 million in the year-earlier quarter.

In the Material Handling & Port Solutions (MHPS) segment, revenues grew 16.7% year over year to $431 million. The segment’s operating income of $2.7 million demonstrates a remarkable turnaround from a loss of $57.2 million in the year-ago quarter.

The Material Processing segment’s revenues were $183 million, up 3.9% year over year. The segment reported an operating income of $22.8 million, down 6.9% from $24.5 million in the year-ago quarter.

Financial Position

Terex ended the quarter with cash and cash equivalents of $364 million, down from $408 million as of 2013-end. Total debt of the company was $1.9 billion as of Jun 30, 2014, marginally down from $2 billion as of 2013-end. Cash flow from operating activities was $24.5 million for the period of six months ended Jun 30, 2014 compared with $129.9 million in the year-ago period. During the quarter, Terex repurchased shares worth approximately $21 million under its previously authorized share repurchase program.

During the quarter Terex completed the divestiture of its truck business to Volvo Construction Equipment for $160 million.

Backlog

Backlog of orders to be filled during the next 12 months was around $2.2 billion as of Jun 30, 2014, a sequential decline of 7% while a 2.2% increase year-over-year. Backlog in the reported quarter increased across all segments, except AWP which declined 15.9% year-over-year.

Guidance

Terex reiterates its 2014 earnings per share band of $2.50–$2.80. The company however trimmed the upper end its previous sales guidance range of $7.3–$7.7 billion to $7.3–$7.5 billion. The company expects continued strength in the AWP, Cranes and MHPS segments to drive growth in the near term. While weaker end-market, a lower anticipated share count and continued market uncertainty remain headwinds.

Our View

The company will benefit from recovery in the construction sector. Even though the Cranes and Construction segment had a disappointing second quarter, recent order trends point toward improved results in the second-half.

Westport, CT-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 currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the sector include Komatsu Ltd. (KMTUY), Caterpillar Inc. (CAT - Analyst Report) and H&E Equipment Services Inc. (HEES - Snapshot Report). While Komatsu holds a Zacks Rank #1 (Strong Buy), Caterpillar and H&E Equipment carry a Zacks Rank #2 (Buy).

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