Terex Announces Third Quarter 2012 Results

Terex Announces Third Quarter 2012 Results

WESTPORT, Conn.--(BUSINESS WIRE)-- Terex Corporation (NYS: TEX) today announced income from continuing operations of $30.2 million, or $0.27 per share for the third quarter of 2012, as compared to income from continuing operations of $36.9 million, or $0.33 per share for the third quarter of 2011. Excluding the costs associated with the debt repayments and certain other items in the quarter, income from continuing operations as adjusted in the third quarter of 2012 was $0.62 per share. Excluding the gain on the sale of Bucyrus International shares and certain other items, income from continuing operations as adjusted in the third quarter of 2011 was $0.30 per share. The glossary at the end of this press release contains further details regarding these items.

Net sales were $1,822.0 million in the third quarter of 2012, an increase of 1.0% from $1,803.6 million in the third quarter of 2011. Excluding the impact of the acquisition of Demag Cranes AG, net sales decreased approximately 8%, of which 5.4% relates to foreign currency fluctuations, from the comparable prior year period. Income from operations was $131.9 million in the third quarter of 2012, an improvement of $79.3 million when compared to income from operations of $52.6 million in the third quarter of 2011. Excluding the impact of certain items in the third quarter of 2012, income from operations as adjusted was approximately $140 million. Excluding the impact of certain items in the third quarter of 2011, income from operations as adjusted was approximately $78 million.

All results are for continuing operations, unless stated otherwise. All per share amounts are on a fully diluted basis.

"Our earnings this quarter are in-line with our expectations, and reflect our continued focus on price discipline and cost containment," commented Ron DeFeo Terex Chairman and CEO. "The mix of performance was varied, with our Cranes, Aerial Work Platforms (AWP) and Material Handling & Port Solutions (MHPS) segments achieving favorable results, while the results of our Construction and Materials Processing (MP) segments showed some softening. Overall, we remain optimistic that the end markets for many of our products will continue to improve."

Mr. DeFeo continued, "The continuing strength in many of our markets, combined with our persistent focus on margin improvement, cash generation, and the integration of our MHPS segment, provide us with continued confidence for favorable long term growth and profitability. However, macro events have created some near term softening of demand and uncertainty for our Construction and MP segments. In addition, order timing and seasonal order patterns have impacted our AWP segment on a near term basis. This is apparent in the backlog for these segments. In the short term, balancing the different demand environments that each of our businesses are facing and the benefits of our recent capital structure activities, we now expect full year 2012 sales of approximately $7.5 billion and hold constant our full year earnings per share outlook for 2012 of $1.95 - $2.05 based on an average share count of approximately 114 million shares and excluding the impact of debt repayments, restructuring and unusual items."

Mr. DeFeo added, "We do not view this near term uncertainty as evidence of a protracted slowdown. We will remain focused in 2013 on margin improvement and cash generation, as well as the integration of MHPS into our global team. When combined with approximately $44 million in reduced interest expense associated with recent debt repayments and re-pricing, we expect 2013 to be a year of moderate top line growth along with meaningful improvement in earnings per share and return on invested capital."

Third Quarter Performance Review

In this press release, Terex refers to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures.These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies.Terex believes that this non-GAAP information is useful to understanding its operating results and the ongoing performance of its underlying businesses.Certain financial measures are shown in italics the first time referenced and are described in a Glossary at the end of this press release.Effective July 1, 2012, the Company realigned certain operations to provide a single source for serving port equipment customers.The Company's Port Equipment Business and French reach stacker business, both formerly reported in the Company's Cranes segment, were consolidated within the MHPS segment and the results of those businesses are now included in the results of MHPS.The historical results have been reclassified to give effect to this change.

Terex Aerial Work Platforms: Net sales for the AWP segment for the third quarter of 2012 increased $77.4 million, or 17.2%, to $526.1 million versus the third quarter of 2011. Continued replacement demand in the North American rental channel combined with some evidence of fleet growth for aerial work platforms drove this increase. Net sales from an acquired business and moderate growth in European and Latin American markets also contributed to the increase.

Income from operations in the third quarter of 2012 was $59.3 million, or 11.3% of net sales, as compared to income from operations of $27.0 million, or 6.0% of net sales, during the third quarter of 2011. Income from operations benefited primarily from improved price realization, volume and customer mix. The Company recently announced an average price increase of 3.4% effective for deliveries commencing in January 2013.

Terex Construction: Net sales for the Construction segment for the third quarter of 2012 decreased $105.0 million, or 26.6%, to $290.4 million versus the third quarter of 2011. End markets for many of the segment's products have exhibited significantly softer demand, particularly Western Europe. The global market for material handlers continued to demonstrate softness, and the Company's trucks and compact construction equipment businesses were also impacted by weakening demand.

Loss from operations in the third quarter of 2012 was $8.3 million, or 2.9% of net sales, compared to a loss from operations of $6.4 million, or 1.6% of net sales, during the third quarter of 2011. Operating results were negatively impacted primarily by lower sales volumes and unfavorable product and geographic mix. These results were partially offset by improved price realization as well as cost savings initiatives taken in 2011 which have continued in 2012. The Company has taken aggressive action to decrease production to match current market demand by implementing shortened work weeks, reductions in force and temporary production shutdowns. Charges of $1.3 million were taken in the quarter related to these actions.

Terex Cranes: Net sales for the Cranes segment for the third quarter of 2012 decreased $22.7 million, or 5.4%, to $394.6 million versus the third quarter of 2011. Adjusting for the translation effect of foreign currency changes, net sales increased approximately 2% from the third quarter of 2011. The Company continued to see strong demand from North America, Australia, South America and the Middle East. Sales into other markets were generally stable compared to the third quarter of 2011.

Income from operations in the third quarter of 2012 was $47.6 million, or 12.1% of net sales, as compared with income from operations of $25.1 million, or 6.0% of net sales, during the third quarter of 2011. Operating results benefited from improved price realization and cost reduction actions implemented in the prior year.

Terex Material Handling & Port Solutions: Net sales for the MHPS segment for the third quarter of 2012 increased $85.6 million, or 22.2%, to $470.8 million versus the third quarter of 2011. Net sales increased from the third quarter of 2011 due to the inclusion of Demag Cranes results for a full quarter in the current period and only half a quarter in the prior year period, as well as increased deliveries of standard and process cranes to customers in Western Europe, South Africa and the Middle East. Net sales generated by higher service activity also contributed to this increase.

Income from operations was $19.9 million, or 4.2% of net sales, as compared with a loss from operations of $1.8 million, or 0.5% of net sales, during the third quarter of 2011. Operating performance improved as the prior year period included approximately $19 million in charges related to the fair value adjustment of inventory. This was partially offset by a $6.9 million charge in the current period as the Material Handling business made changes to better align production with market demand. In addition, a management allocation in the current period was not present in the prior year period.

Terex Materials Processing: Net sales for the MP segment for the third quarter of 2012 decreased $21.2 million, or 12.4%, to $149.9 million versus the third quarter of 2011. Continued softness in Western Europe and India for mobile screening products was the main driver of weakness, offset partially by strength in North America and Australia. Latin America continued to be a positive sales contributor driven by demand for mobile equipment from small mines and quarry activity.

Income from operations in the third quarter of 2012 was $15.2 million, or 10.1% of net sales, compared to income from operations of $12.4 million, or 7.2% of net sales, during the third quarter of 2011. Operating performance improved primarily due to price realization and a favorable mix of products and geographies, as well as adjustments made in production and related production costs to mirror the softer demand environment.

Interest and Other income (expense): Net interest expense increased by approximately $7 million from the third quarter of 2011 due to the increase in debt mainly related to the acquisition of Demag Cranes AG. Other expense in the third quarter of 2012 was $3.6 million compared to other income in the prior year quarter of $50.0 million. The change was primarily driven by income in the prior year period of approximately $76 million from the sale of shares of Bucyrus International. Additionally, the Company recorded an expense of $49.9 million primarily associated with redemption of the Company's 10-7/8% Senior Notes and purchase of 25% of the Company's 4% Convertible Notes.

Taxes: The effective tax rate for the third quarter of 2012 was 23.7% as compared to an effective tax rate of 50.8% for the third quarter of 2011. The lower effective tax rate for the third quarter of 2012 was primarily attributable to jurisdictional mix of income and reductions in the provision for uncertain tax benefits.

Capital Structure: The Company's liquidity at September 30, 2012 decreased by approximately $300 million compared to June 30, 2012 and totaled $983.0 million, which comprised cash balances of $542.6 million and borrowing availability under the Company's revolving credit facilities of $440.4 million. The decrease was mainly due to cash utilized of approximately $411 million in the repayment of the Company's debt, partially offset by operational cash generation. Cash provided by operations in the third quarter of 2012 was approximately $121 million as compared to approximately $108 million for the third quarter of 2011. Debt, less cash and cash equivalents, decreased approximately $40 million in the third quarter of 2012, to $1,521.2 million, compared to the second quarter of 2012, due to the positive cash flow generation.

Phil Widman, Senior Vice President and Chief Financial Officer commented, "We have taken several important steps during the past few months to improve our debt structure and reduce the associated interest expense by purchasing approximately 25% of the 4% Convertible Notes, redeeming the entire principal amount of our 10-7/8% Senior Notes and re-pricing our term loans. We expect these actions to improve our capital structure and are actively looking for additional opportunities over the coming quarters."

Return on Invested Capital(ROIC) was 7.7% for the trailing twelve months ended September 30, 2012, reflecting the improved income from operations during the trailing twelve month period partially offset by the increased average invested capital, primarily due to the acquisition of the Demag Cranes AG business.

Working Capital: Working Capital as a percent of Trailing Three Month Annualized Net Sales was 30.1% at September 30, 2012, as compared to 27.0% at June 30, 2012. The increase was largely due to seasonal decline and softening demand in some segments.

Backlog: Backlog for orders deliverable during the next twelve months was approximately $1,717.6 million at September 30, 2012, a decrease of approximately 20% from September 30, 2011 and approximately 17% from June 30, 2012. The underlying factors that drove the year-over-year and sequential declines were generally very similar.

While we continue to see a strong market for our AWP products, the timing of order placement by rental companies varied during the current and prior year periods, skewing both yearly and sequential comparisons. Large, recurring fleet orders that were booked in the third quarter of 2011 are anticipated to be booked in the fourth quarter, with some already received in the weeks after the close of the third quarter. Therefore, this timing of orders was a primary contributor to the backlog decline given that these orders were not included in the associated backlog figures for the third quarter of 2012.

Also contributing to this decrease was a continued reduction in orders for the Company's Construction segment products. Globally, truck and material handler orders remained weak, with compact construction equipment demand softening in Western Europe. This was partially offset by positive demand within the Roadbuilding business for concrete mixer trucks. Additionally, the current backlog does not reflect order activity related to the recently announced supply agreement with Takeuchi to supply eight new models of Takeuchi branded skid steer loaders.

While quoting activity for mobile cranes has been stable, the Cranes segment backlog has been negatively impacted by certain European macro-economic factors including capital markets tightening and declining government spending, affecting crawler and all-terrain cranes specifically. This was partially offset by continued strength in orders from North and South America, Australia and the Middle East.

MHPS backlog decreased due to lower Material Handling orders. This was largely offset by strength in Terex Port Solutions. Components of the large order related to the European port projects announced in the second quarter of 2012, which will be delivered next year starting in the second half of 2013, have started to be included in the Company's reported backlog.

The Company's MP segment also experienced continued order weakness in Europe as financing and end market demand are still challenging and have caused dealers to delay the replenishment of their historically low inventories. The Company has also seen some weakening of demand for MP mobile equipment in North America. This was partially offset by increased order activity from Australia, the Middle East and Latin America from small mines and aggregate producers in those regions.

The Glossary contains further details regarding backlog.

Conference call

The Company will host a one-hour conference call to review the financial results on Thursday, October 25, 2012 at 8:30 a.m. ET. Ronald M. DeFeo, Chairman and CEO, will host the call. A simultaneous webcast of this call will be available on the Company's website, www.terex.com. To listen to the call, select "Investor Relations" in the "About Terex" section on the home page and then click on the webcast microphone link. Participants are encouraged to access the call 10 minutes prior to the starting time. The call will also be archived on the Company's website under "Audio Archives" in the "Investor Relations" section of the website.

Forward-Looking Statements

This press release contains forward-looking information regarding future events or the Company's future financial performance based on the current expectations of Terex Corporation. In addition, when included in this press release, the words "may," "expects," "intends," "anticipates," "plans," "projects," "estimates" and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. The Company has based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance.

Because forward-looking statements involve risks and uncertainties, actual results could differ materially. Such risks and uncertainties, many of which are beyond the control of Terex, include among others: Our business is cyclical and weak general economic conditions affect the sales of our products and financial results; our ability to successfully integrate acquired businesses, including the recent acquisition of Demag Cranes AG; our ability to access the capital markets to raise funds and provide liquidity; our business is sensitive to government spending; our business is very competitive and is affected by our cost structure, pricing, product initiatives and other actions taken by competitors; we have suffered losses from operations in the past and may suffer further losses from operations; a material disruption to one of our significant facilities; our retention of key management personnel; the financial condition of suppliers and customers, and their continued access to capital; our providing financing and credit support for some of our customers; we may experience losses in excess of recorded reserves; impairment in the carrying value of goodwill and other indefinite-lived intangible assets; our ability to obtain parts and components from suppliers on a timely basis at competitive prices; our ability to timely manufacture and deliver products to customers; the need to comply with restrictive covenants contained in our debt agreements; our ability to generate sufficient cash flow to service our debt obligations and operate our business; our business is global and subject to changes in exchange rates between currencies, regional economic conditions and trade restrictions; our operations are subject to a number of potential risks, including changing regulatory environments, the Foreign Corrupt Practices Act and other similar laws and political instability; possible work stoppages and other labor matters; compliance with changing laws and regulations, particularly environmental and tax laws and regulations; litigation, product liability claims, patent claims, class action lawsuits and other liabilities; our ability to comply with an injunction and related obligations resulting from the settlement of an investigation by the United States Securities and Exchange Commission ("SEC"); our implementation of a global enterprise system and its performance; and other factors, risks and uncertainties that are more specifically set forth in our public filings with the SEC.

Actual events or the actual future results of Terex may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements speak only as of the date of this release. Terex expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement included in this release to reflect any changes in expectations with regard thereto or any changes in events, conditions, or circumstances on which any such statement is based.

Terex Corporation is a diversified global manufacturer reporting in five business segments: Aerial Work Platforms, Construction, Cranes, Material Handling & Port Solutions and Materials Processing. Terex manufactures a broad range of equipment for use in various industries, including the construction, infrastructure, quarrying, manufacturing, mining, shipping, transportation, refining, energy and utility industries. Terex offers financial products and services to assist in the acquisition of Terex equipment through Terex Financial Services. Terex uses its website to make information available to its investors and the market at www.terex.com.