Terex Misses on Q3 Earnings, Shares Fall on Weak View - Analyst Blog

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Shares of Terex Corp. (TEX) tumbled over 10% and closed at $27.38 on Oct 30, a day after the company reported its third-quarter 2014 results. Adjusted earnings declined 19% to 59 cents per share from 73 cents in the year-ago quarter. Earnings, though lagged the Zacks Consensus Estimate of 61 cents, came in line with management's revised guidance of 55 cents to 65 cents.

Including one-time items, Terex reported earnings per share of 51 cents in the reported quarter compared with 73 cents in the year-ago quarter. Earnings in the year-ago quarter did not have any adjustments.

Operational Update

Revenues in the quarter grew 3% year over year to $1.81 billion from $1.76 billion. Revenues, however, missed the Zacks Consensus Estimate of $1.84 billion.

Cost of goods sold increased 5.6% to $1.45 billion from $1.38 billion in the year-earlier quarter. Gross profit dropped 6% year over year to $357 million. Gross margin also contracted 200 basis points to 19.7%.

Selling, general and administrative expenses decreased 1% year over year to $240.5 million. The company reported operating income of $116.8 million, down from $138.6 million recorded in the year-ago quarter.

Segment Performance

The Aerial Work Platforms (AWP) segment's revenues increased 12.3% year over year to $598.7 million. Operating income decreased 15% to $68.4 million from $80.7 million in the prior-year quarter.

The Construction segment's revenues were $207.3 million, up 10.3% year over year. The segment reported operating income of $1.6 million contrary to the year-ago quarter operating loss of $5.1 million.

Revenues for the Crane segment went down to $419.7 million from $453 million in the year-ago quarter. The segment reported operating income of $21.8 million, a 24.6% decrease from $28.9 million in the year-earlier quarter.

In the Material Handling & Port Solutions (MHPS) segment, revenues grew 1.7% year over year to $468 million. The segment's operating income of $17.6 million in the quarter declined from $18.5 million in the year-ago quarter.

The Material Processing segment's revenues were $155.6 million, up 5.3% year over year. The segment reported operating income of $8.7 million, down 54% from $18.9 million in the year-ago quarter.

Financial Position

Terex ended the quarter with cash and cash equivalents of $344.5 million, down from $408 million as of 2013-end. Total debt of the company was $1.9 billion as of Sep 30, 2014, marginally down from $2 billion as of 2013-end. Cash flow from operating activities was $116.6 million for the period of nine months ended Sep 30, 2014 compared with $163 million in the year-ago period. During the quarter, Terex repurchased shares worth approximately $11 million under its previously authorized share repurchase program.

Terex refinanced its existing senior secured credit facility with a new $1.1 billion senior secured credit facility during the quarter. The new credit facility extends the maturity date for the revolving line of credit, lowering cost of borrowing along with increasing liquidity.

On Oct 29, Terex entered into a joint venture and agreed to sell its 51% stake in A.S.V., Inc. to Manitex International, Inc. (MNTX). Terex is supposed to receive more than $125 million in cash from the transaction which is expected to close before the end of 2014. Terex will use a portion of cash to acquire $12.5 million of newly issued Manitex shares and $7.5 million of convertible debt securities.

Backlog

Backlog of orders to be filled during the next 12 months was around $1.7 billion as of Sep 30, 2014, a sequential decline of 22.5% and a 5.1% year-over-year decrease. Backlog in the reported quarter decreased sequentially across all segments.

Guidance

Terex expects adjusted earnings per share for 2014 to be at or near the bottom of the previously announced range of $2.35 to $2.50. The company reiterates its 2014 net sales range of $7.3–$7.5 billion.

Terex anticipates that AWP market will remain strong with overall demand levels for equipment expected to remain flat over the near term. However, the outlook for Construction and Cranes business remain challenging due to uncertainty in Non-Residential Construction. Nevertheless, the opportunities from cost reduction actions, interest expense declines and tax rate improvements remain tailwinds for the company.

Terex removed approximately 500 team members from AWP in the third quarter, which will help it in returning to more normal mid-teens margins within the next 12 months.

Even though the Cranes business is a matter of concern as end markets remain challenged, the company will benefit from recovery in the construction sector,

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 currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industrial products sector include Advanced Emissions Solutions, Inc. (ADES) and AO Smith Corp. (AOS), both carrying a Zacks Rank #2 (Buy).


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