Terex's Gloomy Outlook for Mining and Construction

Includes: AMFW, CAT, F, FLR, KBR, TEX
by: Judy Weil

What a change from Terex Corp.'s Q308 conference call. In early December, most mining companies were highly bullish on mining and cranes, particularly Terex (NYSE:TEX).

Key points from Terex Corp.’s Q408 conference call:

Our Cranes and Mining businesses were not immune to the effects of the economic crisis. While order rates continue to soften in AWP, Construction and Material Processing, the Cranes business in particular in the tower and rough terrain cranes product lines experienced significant reductions.

A substantial percentage of the un-priced crane backlog for 2009 failed to materialize in the confirmed orders. With that backdrop, we expect our 2009 net sales to be 30% to 35% below 2008 levels.

The warning signs we discussed in last quarter's call have turned into order cancellations in deferments for our smaller capacity cranes. Our tower crane business while a small part of our portfolio was the first to drop off. We have since seen drops in orders along with increase cancellation per truck cranes and recently with rough terrain crane.

Cranes may have a stronger first half of the year and potentially a weaker back half of the year.

Mining maybe more even first half, second half. Our materials processing is likely to be weaker in the first half.

As a general rule we are not extending terms.

Global outlook:

Our European customers are generally more pessimistic for the near-term prospects than our US customers.

Our Construction business was down in Q4 significantly driven by markets in Europe, Middle East, Russia and elsewhere being challenged with credit availability, energy price [reps] along with commercial, industrial and infrastructure project delays.

Our business in emerging markets has also slowed in most areas, although, Latin America is reasonably solid. Russia and India have experienced dramatic slow down and even China has moderated.

Spain is in sleep mode right now and I think likely to stay in sleep mode through this year… France is not so bad.

On global competitors:

We do not believe we are going to have the same inventory push that our competitors have but believe we can hold the line. And in Europe with our bigger cranes we have pretty much specialty equipment line and there is very little pressure at least that I am seeing to take back prices because our

I think Caterpillar (NYSE:CAT) will be reasonably disciplined in Europe.

I think Volvo (NYSE:F) will be reasonably disciplined. And, well the Japanese are hard to handicap. The Japanese will be hard to handicap and it will be the Koreans that will attempt; it's a really huge price to get market share.

Change is in the air:

Q: How broadly are you thinking about changing Terex as existing mix of business?

A: I would not expect to own all of the pieces of the business that we own today… We want to pare our product portfolio.

Generally we are machinery company and focused on this industry, but we also has done a decent job of finding assets where aggressive management in the machinery and assembly world where value can be created… We will open our eyes a little bit to options.

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