Morningstar | Vigorous Demand for Terex Continues in 2Q; Maintain $43 FVE
Terex generated top-line growth in every business segment in the second quarter, and operating income grew 33% from the prior-year period. These results surpassed our expectations, but we maintain our no-moat rating and $43 fair value estimate.Total revenue grew 19% year over year to $1.4 billion thanks to aerial work platforms and materials processing increasing 27% and 14%, respectively. Although cranes revenue increased, supply chain deficiencies are still hindering the segment and causing operating losses. We expect these issues to be resolved in the second half and for full-year segment operating profits to be around zero.
Terex's operating margins expanded 80 basis points to 7.4% as higher volumes more than offset the troubles in Cranes. Materials processing continues to impress and expanded operating margins for the seventh consecutive quarter. In addition, aerial work platforms expanded operating margins 320 basis points thanks to strong demand from rental companies and higher utilization rates. Adjusted EPS, which excludes restructuring charges, followed operating profits and grew more than 90% to $0.98. We expect robust global demand and favorable conditions exhibited in the first half of the year to continue in the second half, and note the 31% year-over-year jump in total backlog in the second quarter.
The company repurchased 2.9 million shares for a total of $116 million in the quarter, and has repurchased approximately one third of outstanding shares over the past year and a half. Management also announced a new $300 million share repurchase plan that reflects intention to continue the serial buybacks. In addition to the repurchase plan, management expects full-year adjusted EPS to fall between $2.80 and $3.00, which represents a slight increase on the lower end from previous expectations, and coincides with our forecast.
Terex is a global manufacturer of aerial work platforms, materials processing machinery and cranes. The company has two segments: Aerial Work Platforms, which designs, manufactures, services and markets aerial work platform equipment, utility equipment, telehandlers and light towers, including portable material lifts, self-propelled articulating and telescopic booms, scissor lifts, and trailer-mounted light towers as well as, their related components and replacement parts; and Material Processing, which designs, manufactures and markets materials processing and other equipment, including crushers, washing systems, apron feeders, conveyors, and their related components and replacement parts.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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