Thursday, April 21, 2011

Massive Backlog Build at Terex

It appears that Terex (TEX) has finally turned the corner. Up till now, TEX has remained one of the few companies to not turn around from the 2008 financial crisis. Sure TEX had clearly bottomed out, but after selling their mining equipment business to Bucyrus (BUCY) it left them with a construction heavy product portfolio that continued to remain weak.

The Q1 earnings report finally showed a turn in the cycle as opposed to the bottoming process of the last 6-9 months. Sure the backlog had increased over the last few quarters, but this time TEX reported a 30%+ QoQ increase in all 4 segments: AWP, Construction, Cranes, and Materials Processing. AWP had a whopping 45% sequential increase and a 123% increase over last year. Cranes which accounts for over 60% of the total backlog saw a surprising turnaround with a 30% sequential increase while down on the year.

Backlog has trended from a low of $1.12B in Q210, $1.223B in Q310, $1.3B in Q410, to $1.79B in Q111. The trend has now become the friend of TEX shareholders. TEX remains roughly 60% below its 2007 highs while competitor Caterpillar (CAT) recently hit all time highs. While you can't compare both business lines completely since CAT now has a lot more exposure to hot sectors like mining, all these areas will eventually revert to the mean as you won't need mining unless construction picks up.

Read the full earnings release and presentation for full details on the company. To us though, the below details on backlog sums up the investment thesis on TEX. Aging fleets from 2-3 years of neglect will need to be replaced and much sooner then expected just 3 months ago.


BacklogBacklog for orders deliverable during the next twelve months was approximately $1,792 million at March 31, 2011, an increase of approximately 46% from March 31, 2010 and an increase of approximately 38% from December 31, 2010.
  • AWP segment backlog increased approximately 123% and 45% as compared to March 31, 2010 and December 31, 2010, respectively. Driving this increase are improved fleet utilizations, replacement of aging fleets and customer concerns about product availability later in the recovery cycle. Order activity is strong across most models in the boom, scissor and telehandler categories.
  • Construction segment backlog increased approximately 118% and 72% as compared to March 31, 2010 and December 31, 2010, respectively, primarily due to increased demand for most construction products in the Americas and Russia and material handlers globally.
  • Cranes segment backlog increased approximately 23% and 30% as compared to March 31, 2010 and December 31, 2010, respectively. The majority of these orders are going to large rental customers, with some of these orders coming from new customers ordering products such as the recently launched Roadmaster 9000 truck crane and new boom trucks. The Company is seeing good order demand for rough terrain, boom trucks and tower cranes, especially in North America.
  • MP segment backlog increased approximately 4% and 31% as compared to March 31, 2010 and December 31, 2010, respectively. Materials processing backlog increased due to expected seasonality in the timing of orders as well as low dealer inventories resulting from continued end user financing programs

Disclosure: Long TEX in client and personal accounts. Please review the disclaimer page. 

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