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Terex Corp.’s (TEX - Analyst Report) third-quarter 2012 adjusted earnings of 62 cents per share jumped 107% from 30 cents earned in the year-ago quarter. The company’s earnings also comfortably surpassed the Zacks Consensus Estimate of 50 cents.

Including special items, Terex reported earnings of 27 cents per share in the quarter compared with 33 cents in the year-ago quarter.

Total revenues increased 1% year over year to $1.822 billion, missing the Zacks Consensus Estimate of $1.952 billion. Excluding the impact of the Demag Cranes AG acquisition, net sales decreased 8% year over year.

Costs and Margins

Cost of goods sold declined 5.5% to $1.44 billion versus $1.53 billion in the year-earlier quarter. Gross profit soared 37.4% to $378.6 million. Gross margins expanded 550 basis points to 20.8% in the quarter.

Selling, general and administrative expenses rose 10.6% to $246.7 million in the quarter. The company reported an operating income of $131.9 million compared with $52.6 million in the year-ago quarter.

Segment Performance

Total revenues at Aerial Work Platforms increased 17.2% year over year to $526.1 million. The improvement was due to a replacement-based demand increase in the North American rental channel, fleet growth for aerial work platforms, sales from an acquired business along with modest growth in the markets of Europe and Latin America.

Operating income saw a whopping increase of 119.6% to $59.3 million from $27 million in the prior-year quarter, driven by price realization, volume and customer mix.

Total revenues at the Construction segment dipped 26.6% to $290.4 million. Results deteriorated due to soft demand in the end markets, especially in Western Europe. Global demand for material handlers remained weak along with soft trucks and compact construction equipment businesses.

The segment reported an operating loss of $8.3 million versus a loss of $6.4 million in the year-earlier quarter, driven by reduced sales volumes and negative product and geographic mix, partially offset by price realization along with the cost saving efforts.

Cranes segment’s total revenues dropped 5.4% to $394.6 million. Results deteriorated due to unfavorable foreign currency translation.

Operating income went up to $47.6 million from $25.1 million in the year-earlier quarter, driven by price realization and cost cutting efforts.

Total revenues at Material Handling & Port Solutions inflated 22.2% to $470.8 million. The improvement stemmed from the addition of full quarter results of Demag Cranes, boost in deliveries of standard and process cranes to consumers in Western Europe, South Africa and the Middle East as well as from higher service activity.

The segment reported operating profit of $19.9 million compared to a loss of $1.8 million in the year-ago quarter. Operating profit benefited from fair value adjustment of inventory.

Total revenues at the Material Processing segment were $149.9 million, down 12.4% year over year due to lower demand for mobile screening in Western Europe and India. The negatives were partially offset by strong demand in North America, Australia as well as Latin America.

The segment reported an operating profit of $15.2 million, up from $12.4 million in the prior year quarter. Operating profit improved, driven by price realization, positive mix of products and geographies as well as from adjustments made in production and costs in response to a softer demand condition.

Financial Position

As of September 30, 2012, cash and cash equivalents amounted to $542.6 million versus $774.1 million as of December 31, 2011. Cash from operating activities was an inflow of $138.8 million in the first nine months of 2012 compared with usage of $107.6 million for the first nine months of 2011.

Outlook for 2012

Management expects net sales to remain at $7.5 billion and reiterated the guidance for earnings in the range of $1.95-$2.05 per share.

Our View

Terex aims at improving margins and integrating the Material Handling & Port Solutions segment for a long-term profitability. It also focuses on improving its earnings and generating cash flow to help reducing the debt level.

Recently, the company has redeemed $300 million senior notes bearing an interest rate of 10-7/8% and maturing in 2016. Debt-to-capitalization ratio improved to 50.1% as of September 30, 2012, from 54.7% as of June 30, 2012 and 54.6% as of December 30, 2011.

However, Terex faces competition from large players with greater financial resources like Caterpillar Inc. (CAT - Analyst Report) and Deere and Company (DE - Analyst Report). Caterpillar’s third-quarter 2012 earnings increased 49% year over year to $2.54 per share, beating the Zacks Consensus Estimate of $2.21.

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

 

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