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Bear of the Day: Terex (TEX)

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While this company may get back on track in the longer-term, there are too many near-term challenges. In view of the cloudy outlook, investors should avoid this Zacks Rank # 5 (Strong Sell) stock as of now.

About the Company

Terex Corporation (TEX - Free Report) is a global manufacturer of a broad range of equipment for construction, infrastructure, mining, shipping, transportation, refining, energy, utility and manufacturing industries.

Terex reports in five business segments: Aerial Work Platforms; Construction; Cranes; Material Handling & Port Solutions; and Materials Processing.

The company also offers financial products and services through Terex Financial Services.

Disappointing Third Quarter Results

On April 24, TEX reported its first quarter fiscal 2013 results.  Adjusted earnings came in at $0.23 per share, down 21% from $0.29 earned in the year-ago quarter. The company’s earnings fell short of the Zacks Consensus Estimate of $0.28 as well. Net sales for the quarter were $1,723.1 million, down 5.3% from the first quarter of 2012.

The company saw significant revenue shortfalls in its Material Handling & Port Solutions business, with weakness in Europe and India operations. Total revenue at the Construction segment also declined significantly as the business was affected by slowdown in Europe.  

This was the second consecutive quarter of negative surprise reported by the company.

Lowered Guidance for 2013

On June 17, 2013, the company lowered its guidance for 2013. The management now expects full year 2013 earnings per share to be between $1.90 and $2.10, down from between $2.40 and $2.70 earlier.

Terex now expects second quarter earnings to be in a range of $0.50 to $0.60 per share. The guidance was lowered due to softened sales growth.

Downward Estimates Revisions

After lowered guidance, eight analysts have revised their estimates downwards. The Zacks Consensus Estimate for the current quarter has gone down to $0.55 per share, from $0.84 per share earlier. For full year 2013 too, the estimate has gone down to $2.02 per share from $2.51 per share.

The Bottom Line

The demand for many of Terex’s mining and construction related products remains due to weakness in global economy. While the company remains on track with its cost reduction measures and divestiture of the poorly performing businesses, softness in the European market remains a concern.

TEX is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Neutral”.

Further, Zacks industry rank of 253 out of 265 also indicates more weakness to come in the near term.

Better Plays in the Industry?

Investors looking for exposure to mining and construction industry could consider H&E Equipment Services (HEES), a Zacks rank#2 (Buy) stock. However in view of the negative industry outlook, it is preferable to avoid this space altogether for the time being.

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