Terex Misses on Q1 Earnings & Revs - Analyst Blog

Terex Corp. TEX reported first-quarter 2014 adjusted earnings of 28 cents per share, up 27% year over year from 22 cents in the year-ago quarter, falling way short of the Zacks Consensus Estimate of 34 cents. Including one-time items, Terex reported earnings per share of 28 cents, up 65% from the prior-year quarter's earnings of 17 cents per share.

Operational Update

Revenues in the quarter remained flat at $1.65 billion, missing the Zacks Consensus Estimate of $1.7 billion. Growth in the Aerial Work Platforms AWP and the Materials Handling & Port Solutions (MHPS) segments led to the overall increase.

Cost of goods sold decreased 1% to $1.32 billion from $1.33 billion in the year-earlier quarter. Gross profit rose 4% year over year to $333 million. Gross margin expanded 70 basis points to 20.1%.

Selling, general and administrative expenses increased 1% year over year to $258 million. The company reported an operating income of $75 million compared with $66 million in the year-ago quarter.

Segment Performance

The Aerial Work Platforms segment's revenues improved 15% year over year to $585 million. Operating income increased 14% to $82 million from $72 million in the prior-year quarter.

The Construction segment's revenues dipped 7% year over year to $196 million. The segment reported a loss per share of $5 million, narrower than the year-ago quarter's loss of $14.5 million.

Revenues from the Crane segment decreased 16% year over year to $394 million. The segment reported an operating loss of $0.2 million, remarkably lower than$32.5 million in the year-earlier quarter.

In the Material Handling & Port Solutions segment, revenues grew 9% year over year to $368 million. The segment reported an operating loss of $6 million compared with an operating loss of $29 million in the year-ago quarter.

The Material Processing segment's revenues were $150 million, down 3% year over year. The segment reported an operating income of $10.9 million, down 7% from $11.7 million in the year-ago quarter.

Financial Position

As of Mar 31, 2014, cash and cash equivalents amounted to $390 million versus $408 million as of Dec 31, 2013. Total debt of the company remained flat at $2 billion as of Mar 31, 2014 compared with total debt as of Dec 31, 2013. Cash flow from operating activities was at $25 million in the quarter compared with $59 million in the prior-year quarter. During the quarter, Terex purchased shares for approximately $33 million under its previously authorized share repurchase program.

Backlog

Backlog of orders to be filled during the next 12 months was around $2.36 billion as of Mar 31, 2014, a 29.3% sequential increase and a 10.3% year-over-year increase. Backlog increased across all segments, particularly led by AWP and Cranes.

Outlook

Terex expects 2014 earnings per share in the band of $2.50–$2.80. The company maintained its sales guidance of $7.3–$7.7 billion. Operating margin is expected to be in the range of 7.5% to 8.5% in 2014. The guidance reflects the benefits of internal cost initiatives, capital structure improvements and some growth in projected net sales, tempered with continued market uncertainty, particularly in developing markets. Even though the company expects the global economy to be stronger in 2014, it will still be modest when compared with historic demand levels.

Our View

Terex will realize benefits starting 2014, from its substantive actions undertaken to adjust the cost structure of the MHPS as well as Cranes and Construction segments. In the near term, strong backlog in the MHPS segment will aid results. The AWP segment is continuing to benefit from strong North American rental channel demand along with improved performance in Latin America and Europe. The company will also benefit from recovery in the construction sector. Even though the Cranes segment had a disappointing first quarter, recent order trends point toward improved second-half results.

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.

Peer Performance

Among Terex's peers, Astec Industries Inc. ASTE reported first-quarter 2014 earnings per share of 41 cents, a 28% year-over-year decline from 57 cents in the year-earlier quarter and also fell short of the Zacks Consensus Estimate of 57 cents.

Joy Global Inc. JOY reported adjusted earnings of 49 cents per share in the first quarter of fiscal 2014. The earnings compare unfavorably with $1.31 per share recorded in the year-ago quarter. Earnings missed the Zacks Consensus Estimate of 64 cents by 23.4%.

Terex retains a short-term Zacks Rank #4 (Sell). A better-ranked stock in the same sector is Caterpillar Inc. CAT with a Zacks Rank #1 (Strong Buy).