On Jan 18, we maintained our Neutral recommendation on global equipment manufacturer Terex Corp. (TEX - Analyst Report) following a decent third-quarter 2012 results, impressive expansion opportunities, margin expansion, strong outlook for Aerial Works Platform, partially offset by decline in backlog and soft demand conditions in Europe.
The company’s third-quarter 2012 adjusted earnings were 62 cents per share, more than double the 30 cents earned in the year-ago quarter; and comfortably ahead of the Zacks Consensus Estimate of 50 cents. Total revenue increased 1% year over year to $1.8 billion, missing the Zacks Consensus Estimate of $1.9 billion.
We appreciate Terex’s focused on expanding its global presence, especially in developing nations such as China, India, Brazil, Russia and the Middle East with the company currently deriving 35% of its revenues from these markets. The company has also restructured its business portfolio, transforming from a mining and construction equipment company to a more diverse manufacturer of capital goods machinery with strong market positions in specialty areas.
The company remains focused on improving its margins. Pricing discipline, reduced interest due to recent refinancing efforts, savings from Demag Cranes will continue to aid margins next year as well.
The outlook for Aerial Work Platform segment remains strong on the back of strong replacement demand and equipment rental. Furthermore, the U.S. residential construction is finally stabilizing and the company is on the road to a much-awaited recovery. This bodes well for Terex’s performance going ahead.
However, at the end of the third quarter, total backlog stood at $1.7 billion, representing a decline of 17% sequentially and 20% year over year. Within AWP, backlog declined 32% year over year and the company cited order timing and seasonality for the weak orders. Backlog levels within the Construction segment, Crane segment and Materials Processing segment saw 52%, 10% and 30% annual declines, respectively, mostly due to weakness in Europe. Terex’s significant exposure (around 30%), to Europe might affect results of the company.
Given near-term uncertainty due to macro events and order timing, Terex lowered its guidance for 2012 revenues to $7.5 billion from its earlier range of $7.5-$8 billion.
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