Terex Corp.’s (TEX - Analyst Report) shares had gained 2.46% following the announcement on Monday that the company will sell its truck business. The decision to offload this unit is part of Terex’s efforts to transform to become a lifting and material handling solutions company. The truck business that manufactures and sells off-highway rigid and articulated haul trucks, never fitted into the transformational plan. The truck business will be sold at $160 million to Volvo Construction Equipment.
The sale, subject to regulatory approvals and customary closing conditions, is slated to be completed in the first half of 2014. The truck business has been part of Terex for more than 30 years. The highway rigid and articulated haul trucks come under “Heavy Construction Equipment”, which is a part of Terex’s Construction segment. On a product basis, Heavy Construction Equipment amounted to 9% of Terex’s total sales in 2012 and was pitted against market leaders such as Caterpillar Inc. (CAT - Analyst Report) , Deere & Company (DE - Analyst Report) , Komatsu Ltd. (KMTUY - Snapshot Report) , Doosan, Liebherr and Volvo.
In addition to heavy construction equipment, the Construction segment designs and manufactures road building equipment, landfill compactors, as well as their related components and replacement parts. The performance of the Construction business remains challenged. Sales in the segment declined 24% year over year in the first nine months of 2013 as demand for its products remained weak, particularly in Europe and China. Reduced demand for large trucks, material handlers and aftermarket parts were the primary factors that negatively impacted net sales in the current year period.
Truck Business: A Misfit
Over the past several years, Terex has transformed from predominantly a mining and construction equipment company to a more diverse portfolio that serves numerous end markets. Sales to customers in the construction and mining industries, which contributed 80% of its revenues in 2008 accounted for approximately 50% of revenues in 2012. The company is now planning to become a lifting and material handling solutions company. Thus, the truck business was no longer considered a good fit in the portfolio of lifting and material handling businesses.
The divestiture is also in line with Terex’s focus on streamlining its construction business by selling certain underperforming product lines during the year. The company remains on track with internal cost reduction initiatives in the Material Handling & Port Solutions and Crane businesses. The divestiture of the truck businesses and its focus on reducing overhead and within the Construction segment are expected to aid results going ahead. This divestiture will enable Terex to focus on cranes, aerial lifts and telehandlers as it continues to shift its focus from mining and earthmoving.
Westport, Conn.-based Terex is a global equipment manufacturer, catering to the construction, infrastructure, and surface mining industries. The company’s manufacturing facilities are located in the U.S., Canada, Europe, Australia, Asia and South America. Terex currently has a Zacks Rank #3 (Hold).