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Poor 1Q Earnings Results for Terex

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Terex Corp.’s (TEX - Free Report) first-quarter 2013 adjusted earnings of 23 cents per share declined 21% from 29 cents earned in the year-ago quarter. The company’s earnings fell short of the Zacks Consensus Estimate of 28 cents as well. Including special items, Terex reported income from continuing operations of 18 cents per share in the first-quarter, flat compared with the prior-year quarter.

Operational Update

Total revenue in the quarter declined 5% year over year to $1.723 billion, missing the Zacks Consensus Estimate of $1.820 billion.

Cost of goods sold declined 6% to $1.39 billion versus $1.48 billion in the year-earlier quarter. Gross profit decreased 1% to $327.5 million. Gross margin expanded 100 basis points to 19% in the quarter.

Selling, general and administrative expenses dropped 3% to $259 million in the quarter. The company reported an operating income of $68.4 million, a 7% increase from $63.8 million in the year-ago quarter.

Segment Performance

Total revenue at Aerial Work Platforms improved 21% year over year to $509 million in the reported quarter, due to improvement in replacement demand, particularly in North America. Operating income saw an 85% increase to $72.4 million from $39.2 million in the prior-year quarter.

Total revenue at the Construction segment declined 23% to $279 million. Results deteriorated due to soft demand in the end markets, especially in Europe, as well as the decline in truck sales in global market. The segment reported an operating loss of $13.1 million in the quarter compared with break even results last quarter.

Cranes segment’s total revenue dropped 3.5% to $470.9 million. Operating income went up to $32.5 million from $13 million in the year-earlier quarter.

Total revenue at Material Handling & Port Solutions declined 9% to $154 million, driven by weak demand for port equipment across most product categories and decline in industrial material handing cranes. The segment reported an operating loss of $29.1 million compared to an operating income of $0.6 million in the year-ago quarter;

Total revenue at the Material Processing segment was $154.3 million, down 9% year over year due to weak mineral markets in Australia and South America, soft general construction in Europe, partly offset by stronger North American market and flat selling, general and administrative expenses. The segment reported an operating income of $11.7 million compared to $15.3 million in the year-ago quarter.

Financial Position

As of Mar 31, 2013, cash and cash equivalents amounted to $730 million versus $678 million as of Dec 31, 2012. Cash flow from operating activities was $58.8 million in the reported quarter compared with cash utilization of $78.5 million in the prior year quarter.. Debt to capitalization ratio was 51% as of Mar 31, 2013, flat compared with Dec 31, 2012. The company generated free cash flow in the first quarter of 2013 of about $135 million. Return on invested capital was 7.7% for the trailing twelve months ended Mar 31, 2013.


Backlog for orders to be fulfilled during the next twelve months was around $2.166 billion as of Mar 31, 2013, an increase of 7.8% from Dec 31, 2012. Strong demand for AWP products contributed positively to the backlog, offset by soft demand for construction, mainly as a result of continued European softness.

Outlook for 2013

Terex maintains its 2013 earnings per share forecast range of $2.40 and $2.70 and net sales between $7.9 billion and $8.3 billion. The company expects to generate more than $500 million in free cash flow during the year and remains committed to reducing its debt.

Our View

Terex aims at improving margins and its earnings and generating cash flow to help reduce the debt level. Entering 2013, the Aerial Work Platforms (AWP) segment continues to benefit from the North American rental channel demand. Crane segment’s performance is also expected to remain strong in North America and in certain developing markets.

Westport, CT-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. It also offers a complete line of financial products and services to assist in the acquisition of equipment through Terex Financial Services.

Terex retains a short-term Zacks Rank #2 (Buy). Other companies in the construction and machinery industry are Astec Industries, Inc. (ASTE - Free Report) , Joy Global, Inc. and The Manitowoc Company, Inc. (MTW - Free Report) .


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