You Can't Go Wrong With This Equipment Maker

Terex (NYS: TEX) did what it was expected to do. It rocked the Street with smash-hit numbers. Its first-quarter numbers drove over analysts' estimates on both the top and bottom lines. Things are clearly going well for the equipment maker, and it looks like it will stay that way. Here's why.

Market's looking up
Terex's top line grew an impressive 45% from the year-ago quarter. A major chunk of it came from Demag Cranes, the Europe-based company Terex acquired last year. This acquisition looks like an excellent opportunity for Terex to strengthen its global footprint. Demag Cranes has presence in five continents and 16 countries, including the high-potential emerging markets of China and India. It should thus complement Terex's expansionary moves such as the joint venture it entered into with China Sinomach Heavy Industry last month.

While Asia accounted for 10% of total sales, a major chunk (37%) of it came from North America. Terex's numbers are more proof of the uptick in construction activity in the U.S. Caterpillar's (NYS: CAT) construction industries division reported a 13% rise in revenue in the first quarter, with most of it coming from North America. Expectations for Manitowoc's (NYS: MTW) first quarter are high, too, as it reports numbers in a couple of days. After fourth-quarter sales in its crane division grew at its highest year-over-year pace since 2007, the crane maker is expecting robust growth to continue this year.

The replacement drive
Interestingly, it's not just the demand for new machinery that is pushing up revenue for construction-equipment makers. A lot of it is coming from customers' need to replace aging machinery. Terex's backlog climbed 28% from the year-ago period, backed largely by high replacement demand. Caterpillar also attributed the 36% growth in sales from North America in its construction industries division to such demand. The surge in replacement demand is also proving to be a boon for trucking heavies like PACCAR (NAS: PCAR) , helping drive its first-quarter revenue up by an impressive 48%.

Terex is gearing up to make the most of the opportunity. It hired nearly 500 employees at two U.S. plants during the first quarter to cater particularly to rising replacement demand. I am expecting such demand to be a big catalyst for Terex's growth this year.

The right focus
There's one thing I really like about Terex: the way its gross margins have grown in the past few quarters. As I had expected, the trend continued in the first quarter. From 13.3% in the comparable period last year, it climbed significantly to 18.2% this time. A great sign of management efficiency, improving margins remains a priority for Terex. It expects full-year gross margin to hit 20%, which certainly looks achievable to me.

The Foolish bottom line
Terex's stock has been on a wild run since January, gaining a staggering 74% year-to-date. And why not? The company's top line has shown healthy growth and it is improving its margins and expanding in the right markets.

The second quarter is typically a strong one for Terex, and it has reaffirmed its full-year guidance, too. Click here to add Terex to your stock watchlist.

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At the time thisarticle was published Neha Chamariadoes not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of PACCAR. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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