IB Net Payout Yields Model

Terex Continues to Make Progress But Cranes Struggle

After the bell on the 20th, Terex (TEX) reported earnings that showed an improvement in all divisions except for Cranes. Unfortunately for TEX, Cranes is the largest and most important division though it's impact has been significantly reduced this year as sales bounce back in Aeriel Work Platforms (AWP), Materials Processing (MP), and Construction . The results were a slight disappointment mainly due to unexpected order cancellations and pushouts in Europe. Based on the results from Manitowoc (MTW) reported earlier this month, it wasn't too surprising that Crane sales were weak.

TEX saw a nice improvement in backlog even including a 2% sequential increase in Cranes. All in all with rental companies such as United Rentals (URI) reporting high utilization rates and the ABI turning positive it appears that the weak division in the TEX portfolio will finally turn around in 2011.

Another positive sign is that TEX is finally moving aggressively into developing markets. They are just now starting sales in the AWP facility in China and building a facility in Brazil along with added production in India. Currently developing markets account for 33% of sales.

Most importantly though, backlog increased sequentially signaling stronger quarters ahead. Also, the operating income was finally positive although only at $3M. TEX is forecasting $15M for Q4 which isn't outstanding but headed n the right direction.

TEX remains a solid position in both the Growth and Opportunistic Portfolios. Unfortunately the position was purchased too soon, but finally a return to growth seems at hand.

Highlights from PR:
  • Net sales for continuing operations were $1,075.8 million in the third quarter of 2010, an increase of 15.2% from $933.9 million in the third quarter of 2009. Income from operations was $3.0 million in the third quarter of 2010, an increase of $103.3 million as compared to a loss from operations of $100.3 million in the third quarter of 2009. 
  • We expect the fourth quarter to reflect continued strengthening trends in AWP, Construction and MP, with a weaker Cranes business than we had previously anticipated. Consequently, we expect net sales to increase approximately 10-15% sequentially and to generate a consolidated operating profit of roughly $15 million in the fourth quarter, excluding unusual items, although this will not be sufficient to generate net income in the quarter.” 
  •  Backlog: Backlog for orders deliverable during the next twelve months was approximately $1,175 million at September 30, 2010, a decrease of approximately 6% from September 30, 2009 but an increase of approximately 8% from June 30, 2010.


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