Terex Should Continue to Thrive

Terex (TEX) manufactures construction, mining, and infrastructure equipment.

Aerial Work Platforms [AWP] is its largest segment, having generated 26% of 2007 net revenues. AWP makes material lifts, portable aerial work platforms, articulating and telescopic booms, and scissor lifts.

The Cranes segment, which produced 24% of revenues, makes mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck-mounted cranes, and container stackers.

The Materials Processing & Mining [MPM] segment, which generated 23% of revenues, offers high capacity trucks, excavators, and high-wall mining equipment. It also makes drilling equipment for mining, and material processing equipment such as crushers, screens, trammels, and feeders.

The Construction segment accounted for 21% of revenues. It makes off-highway trucks, scrapers, excavators, wheel loaders, material handlers, backhoe loaders, compaction equipment, and site dumpers. Finally, the Roadbuilding, Utility Products and Other [RBUO] segment, which primarily serves North America, produced 6% of revenues. This segment makes equipment for handling asphalt and concrete such as production plants, mixers, placers, and pavers. It also makes digger derricks, cable placers, and tree trimming equipment used for installing and maintaining utility and telecommunication lines.

TEX has seen strong global demand for its products. Indeed, 70% of 2007 net sales came from outside the U.S. To some extent, international exposure protects the company from the slowing U.S. economy.

Net sales in 2007 soared 19.5% year-over-year to $9.14 billion. Price increases and higher volumes helped boost the operating profit margin by 124 basis points to 10.52%. Net income soared 53.5% to $613.9 million or $5.85 per share. Strength continued into Q1 2008 with net sales up 17.4% to $2 billion. The Cranes and MPM segments saw gains of 26.2% and 42.8%, respectively. AWP sales increased 7.1%. Construction segment sales climbed 9.9%. However, RBUO segment sales fell 5.4%. The gross profit margin expanded 129 basis points to 21.76%. The operating profit margin improved by a less robust 88 basis points to 10.85%. Net income jumped 43.5% year-over-year to $163.3 million or $1.59 per share.

The troubled U.S. construction market poses a significant investment risk, but we are more concerned about a global economic slowdown and continued volatility in raw material costs. However, we expect TEX to continue delivering better-than-expected results thanks in part to its increasing exposure to some of the more vibrant emerging economies, especially in Asia. The Asia/Australia region, which currently accounts for just 14% of TEX’s revenues, is expected to generate about one-third of sales over the long run. Management’s goal is to deliver $12 billion in annual sales by 2010 with a 12% operating profit margin.

Indications are that TEX will continue to thrive. Backlog expected to be realized over the next 12 months is up 41.1% year-over-year and 15.2% from Q4 2007 to $4.82 billion. Despite expectations for higher raw material costs, and slowing economies in the U.S. and Western Europe, management raised 2008 revenue guidance from $10-10.5 billion to $10.5-10.9 billion. It also narrowed per share earnings guidance from $6.65-7.15 to $6.85-7.15.

Comments

[bullwinkle]

It certainly seems like a cheap stock. If the company reports decent earnings this month, the stock should have a significant bounce. The market is obviously concerned about the slowing global construction industry, but infrastructure and mining projects overseas should stay strong, and the long term prospects for this company seem very attractive to me.

[Ian UK]

Yes a very good article. This company has shown excellent management consistently over the last few years and share price drop is really a collective effect of the US pessismism.

The aspect of back log sales although a good indication of sales could perhaps shadow longer term problems within the supply chain creating delivery problems and this would be worrying in the longer term if not resolved swiftly.

One would expect to see comments on production expansion by the company to underline their sales optimism. Will the company be able to pass on higher material costs to their customers ?. That is the question we should be asking.

I notice that on other articles elsewhere relating to large mining trucks note that the extreme shortage of large tires is restricting goods leaving the factory. Hence when we assess backlog we would like to know if it is purely a symptom of supply chain problems or is it manufacturing constraint. However Terex being an Eighth the size of its major competitor Cat it will no doubt be able to pick up business from this slightly faltering and lumbering giant.

Great positive article. Yes this is a pearl of a company and being smaller than your competitor in difficult times and sitting with a tidy pile in the bank and solid management bodes well for the future Heck we have all seen slow downs in the past. Thankfully Mr De Foe is of an age to have seen it all before and I will place my money where my mouth is.

Have a good day and let us all cheer up a bit - please.

Doom and Gloom merchants is becoming the trendy thing to be these days. And to the banks, lick your wounds and start stoking the fire of future growth. J P Morgan, god rest his soul would be giving us all a kick up teh A ** if he was around today !!!