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Terex Corp. (TEX - Analyst Report) reported fourth quarter adjusted EPS of 26 cents, versus 20 cents in the year-ago quarter. The EPS was a penny ahead of the Zacks Consensus Estimate.

Excluding the special items in both periods; Terex reported a loss per share of 3 cents in the quarter compared with a loss per share of 30 cents in the year-ago quarter.

Net sales at Terex increased 47% to $1.957 billion from $1.327 billion in the year-earlier quarter, ahead of the Zacks Consensus Estimate of $1.896 billion. Excluding the impact of the Demag Cranes AG acquisition, net sales increased 20%.

Costs and Margins

Cost of goods sold amounted to $1.6 billion versus $1.1 billion in the year-earlier quarter. Gross profit increased to $330.5 million from $185.6 million in the year-ago quarter. Gross margins expanded 200 basis points to 16% in the quarter.

Selling, general and administrative expenses increased 46% to $271 million in the quarter. The company reported an operating income of $32 million compared with $0.5 million in the year-ago quarter.

Segment Performance

Total revenue at Aerial Work Platforms increased to $437.4 million from $342.8 million in the year-ago quarter. The segment reported an operating income of $26 million versus $11 million in the prior-year quarter.

Net sales at the Construction segment were $409 million versus $316 million in the year-ago quarter driven by strong demand in North America and Europe. Operating loss at the Construction business narrowed to $2.8 million from a loss of $4.3 million in the year-earlier quarter due to lower demand for roadbuilding products, charges to reduce staffing to better align production with lower demand, higher material and component costs.

Cranes reported total revenue of $593.7 million versus $549.1 million in the year-earlier quarter with improvement in demand for rough terrain cranes in North America, robust performance in the port equipment businesses and strong demand for pick and carry crane products in Australia. The segment reported an operating profit of $10.8 million versus $15.7 million in the year-earlier quarter.

Net sales at Material Handling & Port solutions were $361 million driven by machine sales for industrial cranes and mobile harbor cranes due to strong orders during earlier parts of 2011. Region wise, Germany and the United States showed strong performance followed by Brazil, India and China. The segment reported a loss of $16.6 million. This included a charge of   $22.1 million related to the step-up in the valuation of inventory at the acquisition date of Demag Cranes AG partially offset by higher spare parts, service and maintenance revenue.

Net sales at the Material Processing segment were $170.8 million, up 17% year over year due to strong mobile equipment sales in Australia, South Africa and parts of southern Asia and Latin America. However, lower demand for crushing equipment in Europe was a minor offset. The segment reported an operating profit of $14.6 million, up from $5.3 million in the prior year quarter.

Fiscal 2011 Performance

Terex reported fiscal adjusted EPS of 46 cents compared with a loss of $1.29 in the prior year,. This was ahead of the Zacks Consensus Estimate of 44 cents.. Including special items, EPS in fiscal 2011 stood at 35 cents compared with a loss in the previous year. Revenues improved 47% year over year to $6.5 billion, surpassing the Zacks Consensus Estimate of $6.4 billion.

Financial Position

As of December 31, 2011 cash and cash equivalents amounted to $774 million versus $894 million as of December 31, 2010. Cash from operating activities was an inflow of $19.1 million during the year compared with usage of  $610 million in fiscal 2010. The debt-to-capitalization ratio worsened to 55% as of December 31, 2011 from 45% as of December 31, 2010.

Outlook

Management now expects full year net sales in the range of $7.5 billion to $8.0 billion. Full year EPS is projected in the range of $1.65 to $1.85. For the fourth quarter, EPS is forecast in the band of 20 cents to 25 cents. Capital expenditures is expected to be approximately $140 million. Ratio of working capital to trailing three months annualized sales is projected at  25% at the end of 2012.

In the Aerial Work Platform segment, operating margin is projected to be in the 10% - 11% range for 2012, driven by price realization and productivity enhancements. The Cranes segment’s operating margin is expected to be within 5% to 6%. Weak demand in Europe is expected to be offset by growth in North American and Australian markets. Latin America and the Middle East markets will also remain strong. Price increases and restructuring activities are expected to aid margins.

The Material Processing segment sales is expected to remain strong in Australia and South Africa, combined with improved pricing overall. Operating margins is expected to lie within 10% to 11%. Sales are also expected to improve in the Material Handling & Port segment led by the services and the port solutions businesses, Particularly in North America, India and the Middle East. Operating margin is expected in the 4.5% - 5.5% range. In the Construction business, roadbuilding operations are expected to remain weak in 2012. Overall segment operating margin is expected to be in the range of 2% - 3%.

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 - Analyst Report), Deere & Company (DE - Analyst Report) and Komatsu Ltd. (KMTUY).

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