EUR 850.00 For Business Accounts Only

Morningstar | Terex Continues to Evolve; Resegmentation Complete but More Work Remains

After the previously announced divestiture of its Demag mobile crane business, Terex reported its first quarter with only two manufacturing segments--aerial work platforms (AWP) and materials processing (MP). Terex, once widely known as a crane company, no longer has a reportable crane segment. Approximately $275 million in revenue from its former crane segment, which includes tower and rough terrain cranes, is now included with its corporate segment, complicating our analysis. After liberal use of adjustments for restructuring, transformation, and loss from discontinued operations, Terex reported adjusted EPS in the first quarter of $0.87, beating consensus of $0.61. Revenue of $1.13 billion was in line with Street estimates. Free cash flow in the quarter was negative $257 million. We maintain our fair value estimate of $44 and high uncertainty rating.

Terex’s AWP segment, which now includes Terex’s utilities business formerly included in cranes, reported revenue of $728 million, which was down 1.3% year over year. Adjusted operating margin also declined, to 8.4% from 9.6% in the first quarter of 2018. Inclement weather and currency headwinds were cited as contributing factors. As part of management’s larger execute to win strategy, Terex is undergoing supplier consolidation that is heavily focused on the AWP segment. Management suggested that these efforts are ramping slowly. On a more positive note, AWP sales in Asia-Pacific were up 57% year over year off a relatively small base. This growth was surprising as the larger equipment market in China has become more competitive recently due to aggressive pricing by domestic brands.

Terex’s MP segment was a strong performer in the quarter, with revenue up 9.6% year over year. Adjusted operating margin in the quarter expanded to 14.2% from 12.6% in prior-year period. Strong demand for its crushing and screening products driven by infrastructure spending contributed to the performance.

Despite the odd resegmentation and questionable pattern of M&A activity over the last decade, we believe Terex’s current strategy as outlined by management is sound. Specifically, its remaining product lines address two important elements of the global economy--increased infrastructure investment and demands for greater labor productivity. Its Genie brand of aerials lifts continues to be one of the most admired by rental companies and end users. We like the feature enhancements Genie has added to its product lineup such as telematics solutions that were previously not available in such products. Management appears confident it can improve its internal operations and increase margins. We will be watching Terex’s progress closely as it continues supplier consolidation and enhancements in customer-facing technology.