Terex Results Improve in 2Q

Terex Corp. ( TEX - Analyst Report ) reported second-quarter 2012 adjusted earnings of 75 cents per share, versus 10 cents in the year-ago quarter. The company’s earnings also comfortably surpassed the Zacks Consensus Estimate of 49 cents.

Including special items, Terex reported earnings of 75 cents per share in the quarter compared with 1 cent in the year-ago quarter.

Total revenues increased 35.2% year over year to $2.012 billion, ahead of the Zacks Consensus Estimate of $2.008 billion. Excluding the impact of the Demag Cranes AG acquisition, net sales increased 11% year over year.

Costs and Margins

Cost of goods sold increased 23% to $1.6 billion versus $1.3 billion in the year-earlier quarter. Gross profit soared 99.4% to $428.6 million. Gross margins expanded 690 basis points to 21.3% in the quarter.

Selling, general and administrative expenses increased 22% to $253.6 million in the quarter. The company reported an operating income of $175 million compared with $6.8 million in the year-ago quarter.

Segment Performance

Total revenues at Aerial Work Platforms increased 25% to $605.7 million from $485.7 million in the year-ago quarter. The improvement was due to a replacement-based demand increase in the North American rental channel along with natural resource based construction spending in Australia.

Operating income increased to $83.2 million from $27.4 million in the prior-year quarter, driven by higher manufacturing productivity and price realization, partially offset by increasing raw material costs.

Total revenues at the Construction segment increased 8.1% to $388.8 million in the quarter, driven by a strong demand of compact construction equipment, truck, along with component sales in Russia, China and Latin America.

Operating income increased to $9.6 million from a loss of $6.0 million in the year-earlier quarter due to cost cutting efforts and higher price realizations.

Cranes segment’s total revenues surged 4.3% to $484.2 million with improvement in demand for rough terrain cranes and improved demands for all terrain cranes in North America, the Middle East, Latin America and Australia, partially offset by foreign currency translation.

The segment reported an operating profit of $43.5 million versus a loss of $34 million in the year-earlier quarter. Improvement was attributable to cost cutting efforts and price realization.

Total revenues at Material Handling & Port solutions were $361 million. The segment reported operating profit of $11.8 million. Operating profit benefited from reduction in spending levels and product mix.

Total revenues at the Material Processing segment soared $190.3 million, up 4% year over year due to increased demand in markets of North America and Australia. However, lower demand for crushing and screening equipment in Western Europe was a minor offset.

The segment reported an operating profit of $28.6 million, up from $21.1 million in the prior year quarter. Operating profit improved, driven by a restart of manufacturing activities at Coalville location along with cost saving efforts and pricing.

Financial Position

As of June 30, 2012, cash and cash equivalents amounted to $841.5 million versus $774.1 million as of December 31, 2011. Cash from operating activities was an inflow of $17.8 million in the first six months of 2012 compared with usage of $218.9 million for the first six months of 2011.

Outlook for 2012

Management narrowed net sales in the range of $7.5 billion to $7.8 million from the previous guidance of $7.5-$8.0 billion. Earnings are projected in the range of $1.95-$2.05 per share, up from the previous guidance of $1.65 to $1.85.

Our View

The Construction segment has returned into profit, driven by strong demand in the emerging markets of Russia, China and Latin America. We expect the segment to be further benefited by the new 27-month highway Bill moving ahead.

However, soft demand conditions in Europe and foreign currency translation may impact margins negatively. Terex also faces tough competition from companies like Caterpillar Inc. ( CAT - Analyst Report ) and Deere & Company ( DE - Analyst Report ) .

Terex retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.