Terex Corporation (NYSE: TEX) today announced income from continuing operations of $83.6 million, or $0.75 per share for the second quarter of 2012, as compared to income from continuing operations of $0.9 million, or $0.01 per share for the second quarter of 2011. Excluding the impact of restructuring and other costs and the gain on the sale of Bucyrus International shares, income from continuing operations as adjusted in the second quarter of 2011 was $0.10 per share. The glossary at the end of this press release contains further details regarding these items. There were certain items in the second quarter of 2012 that, in the aggregate, did not have a significant impact on income from continuing operations.
Net sales were $2,011.5 million in the second quarter of 2012, an increase of 35.2% from $1,488.2 million in the second quarter of 2011. Excluding the impact of the acquisition of Demag Cranes AG, net sales increased approximately 11% from the comparable prior year period. Adjusting for the translation effect of foreign currency exchange rates, net sales increased approximately 40% from the comparable prior year period and 16% excluding the acquisition. Income from operations was $175.0 million in the second quarter of 2012, an improvement of $168.2 million when compared to income from operations of $6.8 million in the second quarter of 2011. Excluding the impact of restructuring and related items in the second quarter of 2011, income from operations as adjusted was approximately $43 million.
All results are for continuing operations, unless stated otherwise. Results for Demag Cranes AG are reported as the Material Handling & Port Solutions (MHPS) segment. All per share amounts are on a fully diluted basis.
“We had a strong second quarter”, commented Ron DeFeo Terex Chairman and CEO. “This year’s focus has been to improve margins, generate cash and integrate Demag Cranes AG. We are on or ahead of expectations in these categories. Margin improvement resulted from better price realization and cost discipline. We generated free cash flow of approximately $155 million primarily from profit improvement. The integration team has identified and is beginning implementation of improvement opportunities and realizing synergies.
Mr. DeFeo continued, “We are pleased with how the Company performed this past quarter. Our historical businesses continued to grow with improved price realization and reduced expenses (both manufacturing and SG&A) due to actions taken in the prior year. Consequently, the overall operating margin increased significantly to 8.7%, and to 9.9% excluding the Demag Cranes AG acquisition. Our Aerial Work Platforms (AWP) and Cranes segments had strong performances and are well positioned for continued improvement in the second half of the year. The Construction segment returned to profitability for the first time since 2008 and Materials Processing continued their positive trend. Overall, we believe the strength in our AWP and Cranes segments, as well as in North America and select other markets like Australia, will offset the weakness we expect to experience in certain markets during the second half of the year.”
Mr. DeFeo added, “In evaluating the second half outlook, we are encouraged by the balance in our business and despite concerns in Europe and foreign currency headwinds we expect to achieve earnings for the full year of $1.95 to $2.05 per share (based on an average share count of approximately 114 million shares and excluding the impact of restructuring and unusual items) on sales of $7.5 to $7.8 billion. This outlook includes approximately $0.05 per share cost in the second half of 2012 for the guaranteed payment to the minority shareholders of Demag Cranes AG, pursuant to the Domination and Profit and Loss Transfer Agreement (DPLA).”
Second 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.
Terex Aerial Work Platforms: Net sales for the AWP segment for the second quarter of 2012 increased $120.0 million, or 24.7%, to $605.7 million versus the second quarter of 2011. The Company continued to see increased replacement-based demand in the North American rental channel for its aerial work platform products. The Australian market also continued to be a relatively strong contributor, due to natural resource based construction spending.
Income from operations in the second quarter of 2012 was $83.2 million, or 13.7% of net sales, as compared to income from operations of $27.4 million, or 5.6% of net sales, during the second quarter of 2011. Income from operations benefited primarily from improved price realization and greater manufacturing productivity due to higher volumes, partially offset by higher input costs.
Terex Construction: Net sales for the Construction segment for the second quarter of 2012 increased $29.1 million, or 8.1%, to $388.8 million versus the second quarter of 2011. Adjusting for the translation effect of foreign currency exchange rates, net sales increased approximately 14% from the comparable prior year period. Compact construction equipment as well as truck and component sales in developing markets, particularly Russia, China and Latin America were significant contributors to the year-over-year increase in sales. The Company continued to see weakness in demand for roadbuilding equipment.
Income from operations in the second quarter of 2012 was $9.6 million, or 2.5% of net sales, as compared to a loss from operations of $6.0 million, or 1.7% of net sales, during the second quarter of 2011. Operating results benefited from improved price realization as well as cost savings initiatives taken in 2011. These were partially offset by an unfavorable product mix.
Terex Cranes: Net sales for the Cranes segment for the second quarter of 2012 increased $20.1 million, or 4.3%, to $484.2 million versus the second quarter of 2011. Adjusting for the translation effect of foreign currency exchange rates, net sales increased approximately 12% from the comparable prior year period. Strong demand for rough terrain cranes and improving demand for all terrain cranes continued in North America, the Middle East and Latin America, as well as general strength in Australia.
Income from operations in the second quarter of 2012 was $43.5 million, or 9.0% of net sales, as compared with a loss from operations of $34.0 million, or 7.3% of net sales, during the second quarter of 2011. Operating results benefited from improved price realization and cost reduction actions implemented in the prior year. The 2011 results included charges of approximately $36 million in restructuring and related charges.
Effective July 1, 2012, the port equipment business currently reported as part of the Cranes segment will be consolidated within the MHPS segment. Excluding the port equipment business results, the
operating margin for the Cranes segment would have been approximately 11% in the second quarter of 2012.
Terex Material Handling & Port Solutions: Net sales for the MHPS segment for the second quarter of 2012 were $361.0 million. Net sales are generally on track for port equipment and services, but are somewhat behind expectations in the industrial cranes business. Net sales generated by the segment’s service component was particularly strong in North America.
Income from operations was $11.8 million in the second quarter of 2012. Operating results improved by $8.9 million compared to the first quarter of 2012 primarily due to product mix and reduced spending levels.
Terex Materials Processing: Net sales for the MP segment for the second quarter of 2012 increased $1.6 million, or 0.8%, to $190.3 million versus the second quarter of 2011. Adjusting for the translation effect of foreign currency exchange rates, net sales increased approximately 4% from the comparable prior year period. Continued strength in North America and Australia were the primary sales drivers, partially offset by softening demand in Western European markets, particularly for mobile crushing and screening equipment.
Income from operations in the second quarter of 2012 was $28.6 million, or 15.0% of net sales, compared to income from operations of $21.1 million, or 11.2% of net sales, during the second quarter of 2011. Operating performance improved primarily due to pricing, cost savings and the reimplementation of manufacturing at the Coalville location, allowing the business to release a restructuring reserve of $2.4 million.
Interest and Other income (expense): Net interest expense increased by approximately $20 million from the second quarter of 2011 due to the increase in debt mainly related to the acquisition of Demag Cranes AG. Other expense in the second quarter of 2012 was $3.6 million compared to other income in the prior year quarter of $34.6 million. The change was primarily driven by income in the prior year period of approximately $40 million from the sale of shares of Bucyrus International and an accrual in the second quarter of 2012 for the guaranteed payment to the minority shareholders of Demag Cranes AG pursuant to the DPLA, which payment is not tax deductible.
Taxes: The effective tax rate for the second quarter of 2012 was 35.4% as compared to an effective tax rate of 98.8% for the second quarter of 2011. The lower effective tax rate for the second quarter of 2012 was primarily attributable to losses that did not produce tax benefits having less of an impact in the current period than in the prior year period.
Capital Structure: The Company’s liquidity at June 30, 2012 decreased by approximately $205 million compared to March 31, 2012 and totaled $1,283.1 million, which comprised cash balances of $841.5 million and borrowing availability under the Company’s revolving credit facilities of approximately $442 million. The decrease primarily resulted from repayment and termination of Demag Cranes AG’s credit facility following the effectiveness of the DPLA, partially offset by operational cash generation. As a result of the approval of the DPLA, Terex now has access to Demag Cranes AG’s cash flows. Cash provided by operations in the second quarter of 2012 was approximately $97 million and approximately $18 million in the first half of 2012. For the comparable periods in 2011, cash used in operations was approximately $142 million and $219 million.
Return on Invested Capital (ROIC) was 7.9% for the trailing twelve months ended June 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. Debt, less cash and cash equivalents, decreased approximately $74 million in the second
quarter of 2012, to $1,561.3 million, compared to the first quarter of 2012, due to positive cash flow generated.
Working Capital: Working Capital as a percent of Trailing Three Month Annualized Net Sales was 27.0% at June 30, 2012, as compared to 30.5% at March 31, 2012. This decrease was primarily due to accelerating throughput mainly in the Construction segment and overall increased net sales in the current quarter.
Backlog: Backlog for orders deliverable during the next twelve months was approximately $2,076 million at June 30, 2012, an increase of approximately 18% from June 30, 2011 and a decrease of approximately 10% from March 31, 2012. Adjusting for the translation effect of foreign currency exchange rates, backlog increased approximately 23% compared to June 30, 2011 and decreased approximately 7% from March 31, 2012.
The primary driver of the year-over-year increase in backlog was the addition of the backlog related to the MHPS segment. Increased replacement of aging fleets drove an increase in AWP’s backlog. This was offset by a decrease in Construction’s backlog, primarily due to lower demand for trucks and material handlers globally as well as compact equipment in North America.
The principal driver of the sequential decrease in backlog was a decrease in AWP’s backlog primarily resulting from the seasonal ordering patterns of AWP customers as customers tend to place orders for delivery in time for the busier warmer months in North America. In addition, Construction and MP segment backlog decreased primarily due to weakness in Western European demand and, as a result, the Company is planning to take steps to realign production to match current demand levels. These decreases were partially offset by an increase in Cranes backlog primarily due to continued strong demand for rough terrain cranes in North America, the Middle East and Latin America, as well as the return of demand for all-terrain and crawler products where the Company has largely firmed up production for these products through the back half of the year.
In MHPS, the port solutions business secured two large orders recently for major European port projects worth more than $200 million over the next several years. However, deliveries for these orders will take place beyond the standard 12 month backlog reporting period and therefore are not included in the reported figures.
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, July 26, 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.