Terex Corp.
(TEX) reversed its string of
losses with a fiscal 2011 first quarter profit per share of 4
cents. Results were a stark improvement from the year-ago loss of
73 cents a share. The reported profit was also an improvement from
the Zacks Consensus Estimate of a loss per share of 10
cents.
The profit in the quarter
included an after-tax gain of 28 cents per share on the sale of
approximately 1.8 million shares of Bucyrus International
Inc. (BUCY), an after-tax expense of
4 cents per share for costs associated with the early retirement of
the company’s 7-3/8% senior subordinated notes in the quarter and
after-tax charges related to restructuring and a customer
insolvency of 3 cents per share.
Revenue in the quarter
increased by a sharp 34% year over year to $1,256.2 million, ahead
of the Zacks Consensus Estimate of $1,129 million. Revenues
increased across all of its segments, barring cranes. Backlog was
$1,791.9 million as of March 31, 2011, up 38% from $1,298 million
as of December 31, 2010 and up 46% from $1,223.6 million as of
March 31, 2010.
Cost of sales, expressed as
a percentage of revenue, decreased 280 basis points to 86.7% and
selling, general, administrative and engineering expenses followed
suit with a 350-basis point drop to 14.1%. Gross margin likewise
surged 280 basis points to 13.3%. Terex’s operating loss in the
quarter was $9.3 million; an improvement from an operating loss of
$66.5 million in the year-ago quarter.
Segment
Performance
The Aerial Work
Platforms segment posted a revenue
growth of 75% to reach $376.8 million. The increase was driven by
recovery in the North American market and strong growth at other
regions, especially in Western Europe.
The segment’s operating
income was $6 million compared with the year-ago operating loss of
$20.3 million. The turnaround was driven by a spur in sales volume
and manufacturing cost absorption that resulted from increased
production levels, slightly offset by increased material costs and
weaker price realization due to early order discount and other
incentives.
Revenues at the
Construction
segment grew
68% to $342.9 million in the quarter due to strong growth across
all product categories, in particular material handler and trucks,
especially for quarry applications in developing
markets.
Further, strong demand for
backhoe loaders in Western Europe and Russia, increased interest in
compact equipment in rental outlets throughout the Americas and
strong parts sales driven by aging fleet and higher utilization
culminated in the sales increase.
The segment’s operating
loss narrowed to $3.5 million from $22.8 million in the year-ago
quarter aided by higher net sales and improved operating
performance due to restructuring that has taken place over the past
year. This was slightly offset by increased costs for certain raw
materials and components as well as selling, general and
administrative expenses in response to the growth.
The Material
Processing segment posted a 41%
year-over-year revenue growth climbing to $152.2 million in the
quarter driven by strong worldwide machine sales particularly in
Australia, South Africa and the Americas. The gains in sales were
due to a stronger global economic picture and dealer restocking
ahead of anticipated orders driven by early cycle demand. Northern
and Eastern European markets have started to show signs of
recovery, while demand in Southern European markets has remained
weak.
Operating income at the
segment clocked $12.3 million, up smartly from a loss of $0.3
million in the prior-year quarter, driven by better manufacturing
utilization and product pricing, offset partially by the rising
cost of components and raw materials.
Revenue at the
Crane
segment dipped
4% to $398.3 million in the quarter. Despite the miss, sales were
favorably impacted by a recovery in demand throughout the Americas
with shipments being driven predominantly by energy and commercial
construction applications.
Demand remained slow for
large crawler cranes worldwide, where the market tends to recover
later in the business cycle. Also contributing to crawler crane
demand weakness was the postponement or cancellation of certain
wind projects in Germany and the UK due to reductions in government
funding. Terex’s port equipment products have experienced delivery
delays, with these deliveries now expected to take place in the
second and third quarters of 2011.
Operating loss at Crane was
$22.5 million, aggravating from a loss of $3.1 million in the
year-ago quarter. Results were negatively impacted by material cost
increases, competitive pricing, product mix and a $5 million charge
taken for customer insolvency, but were slightly buttressed by
improved cost absorption, especially in North America.
Larger-than-expected losses
of approximately $16 million mainly due to delayed deliveries and a
cost structure that currently remains on the higher side were
reported in the port equipment business.
Financial
Position
Terex Corp. had cash and
cash equivalents of $723.7 million as of March 31, 2011, down from
$894.2 million as of December 31, 2010. The company used net cash
of $76.6 million for operating activities in the quarter compared
with an outflow of $84.1 million in the year ago
quarter.
The debt-to-capitalization
ratio improved to 40% as of March 31, 2011, from 45% as of December
31, 2010.
Outlook
Terex raised its fiscal
2011 net sales guidance range to $5.2 billion to $5.5 billion from
the previous range of $5 billion to $5.4 billion citing an improved
demand environment. However, given increased pressures from
component costs, Terex maintained its fiscal 2011 EPS in the range
of 60 cents to 75 cents excluding the impact of restructuring and
unusual items. The company expects to deliver profits in the
ensuing quarters.
Our
Take
Terex has been continuously
posting losses since the first quarter of fiscal 2009, affected by
the global economic slowdown. Particularly hurt were the Aerial
Work Platforms and Construction businesses. Even though the Aerial
Work Platforms segment has delivered a turnaround, the Construction
segment continues to book losses. However, an increase in backlog
and order quotation activity in the quarter looks
promising.
Further, the Cranes segment
remains in the loss territory. The company expects the segment to
be challenged in the first half of 2011 as it works through the
effects of inconsistent demand for many of its larger cranes during
2010. However, the long-term outlook for the segment looks good
considering the significant increase in demand from North America,
as well as a continued increase in activity in developing
markets.
We appreciate Terex’s
initiatives to invest in developing markets, which make up
approximately one-third of the company’s overall sales. A
substantial improvement in demand in these markets could offset the
weakness that the company is facing in its mature markets. We
currently have a Zacks #3 Rank (short-term Hold recommendation) on
the stock.
Westport, Connecticut-based
Terex Corporation is a global manufacturer of a broad range of
equipment for the construction, infrastructure, quarrying, mining,
shipping, transportation, refining, energy and utility
industries.
The company’s manufacturing
facilities are located in the U.S., Canada, Europe, Australia, Asia
and South America. It operates through four business segments:
Aerial Work Platforms, Construction, Cranes and Materials
Processing. Terex competes with the likes of
Caterpillar
Inc. (CAT),
Deere
& Company (DE) and
Komatsu
Ltd. (KMTUY).
BUCYRUS INTL A (BUCY): Free Stock Analysis Report
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