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Why Is Terex (TEX) Down 8.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Terex (TEX - Free Report) . Shares have lost about 8.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Terex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Terex Lags Q3 Earnings & Revenue Estimates, Cuts View
 
Terex Corporation’s third-quarter 2018 adjusted earnings surged 36% year over year to 68 cents per share but fell short of the Zacks Consensus Estimate of 75 cents per share by a margin of 9%. Including one-time items, Terex posted earnings of 51 cents per share in the quarter compared with 63 cents reported in the year-ago quarter.
 
Operational Update
 
Revenues in the quarter improved 11% year over year to $1,229 million from $1,111 million recorded in the prior-year quarter. Revenues fell short of the Zacks Consensus Estimate of $1,280 million. Backlog rose by 41% in the reported quarter, aided by an increase of 72% in Material Processing (“MP”) segment and  rise of 50% in Aerial Work Platforms (“AWP”) segment.
 
Cost of goods sold increased 12% to $996 million from $892 million in the prior-year quarter. Gross profit improved 6% year over year to $233 million. However, gross margin contracted 80 basis points (bps) to 18.9%. Selling, general and administrative expenses increased 5% year over year to $161 million. Terex reported an operating income of $72 million compared with $66 million in the year-ago quarter, a rise of 9%. Operating margin remained flat at 5.9%.
 
Segment Performance
 
The Aerial Work Platforms (“AWP”) segment reported revenues of $634 million in the third quarter, up 14% from $557 million in the prior-year quarter. Operating income improved 27% to $73 million from $58 million in the prior-year quarter.
 
Revenues from the Crane segment dipped 0.2% to $301 million from the year-ago quarter. The segment reported an operating loss of $14 million compared with the loss of $0.3 million in the prior-year quarter.
 
The Material Processing (“MP”) segment’s revenues were $295 million, up 14% year over year. The segment reported an operating income of $28.5 million, flat year over year.
 
Financial Position
 
Terex had cash and cash equivalents of $326 million at the end of third-quarter 2018 compared with $627 million at the end of 2017. The company used $19.6 million of cash in operations in the nine-month period ended Sep 30, 2018 compared with cash outflow of $56.2 million in the prior-year comparable period. Long-term debt was $1,128 million as of Sep 30, 2018, compared with $980 million as of Dec 31, 2017.
 
2018 Guidance Trimmed on Higher Costs
 
Terex lowered adjusted EPS guidance for 2018 to $2.60-$2.70 from the previous guidance of $2.80-$3.00 due to lower-than expected third-quarter results. Further, higher input costs, including tariffs, and foreign exchange headwinds led to the trimmed guidance. Moreover, the company updated production plans for the Cranes segment which was affected by supply chain challenges in the third quarter of 2018. Nevertheless, demand for Terex’s products remain strong as evident from the growth in sales, bookings, and backlog noted in the third quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -32.17% due to these changes.

VGM Scores

At this time, Terex has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Terex has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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