Terex Corp. last week announced net income for the second quarter of 2008 of $236.3 million, or $2.32 per share, compared to net income of $174.6 million, or $1.66 per share, for the second quarter of 2007, an increase in earnings per share of 39.8 percent. Net sales of $2.9 billion in the second quarter of 2008 were 25.3-percent above the comparable period in 2007. Continued strong demand in the Cranes and MPM segments primarily drove the increase. In addition, the increase in net sales versus the prior-year period was favorably impacted by approximately $184 million due to the translation effect of foreign currency exchange rate changes, primarily the strength of the Euro, British Pound and Australian Dollar relative to the U.S. Dollar, as well as approximately $79 million in net sales from recent acquisitions.
“Results this quarter demonstrate the continued strength of our global franchise,” said Ron DeFeo, Terex chairman and CEO. “The infrastructure and commodity boom is driving strong demand for our cranes and mining equipment. Based on our increasing backlog for these products, we expect these positive trends to continue. Also, as expected, this was partially offset by slower growth trends in the Aerial Work Platforms segment and further softening in the Construction segment. Though both AWP and Construction experienced growth this past quarter, slower growth in Western Europe impacted their performance.”
Income from operations was $370.9 million in the second quarter of 2008, an increase of 30.4 percent versus the second quarter of 2007. The second-quarter 2008 operating margin of 12.6 percent increased 50 basis points from the comparable 2007 period operating margin of 12.1 percent. The mix of operating margin has shifted versus the prior-year period, with a lower income contribution from the AWP segment and greater income contributions from the Cranes and MPM segments.
“Not surprisingly, input costs continue to present challenges for us,” DeFeo said. “To offset this, we are implementing various price increases and maintaining cost discipline. While in total we expect higher pricing will largely offset the cost increases that we have already incurred, as well as additional cost increases that we expect to incur during the second half of 2008, we do expect that there will be a lag between when higher costs are incurred and price increases to our customers take effect. Accordingly, we anticipate some reduction in operating margin in our business during the remainder of 2008.”
Net sales for the AWP segment for the second quarter of 2008 increased 5.1 percent, to $672.7 million, versus the second quarter of 2007. Excluding the translation effect of foreign currency exchange rate changes, net sales increased approximately 1 percent.
Net sales in Western Europe did not achieve the company’s growth expectations this quarter, while U.S. performance was as expected. AWP performance in developing markets, including the Middle East, Russia, Eastern Europe and Brazil, continued to expand because of ongoing construction and infrastructure spending, along with tightening safety standards for work at height. AWP production is being adjusted to reflect anticipated demand in the second half of 2008 in the U.S. and Western Europe.
AWP operating margin in the second quarter of 2008 declined to 18.6 percent from 23.0 percent in the second quarter of 2007, primarily as a result of sales mix, rising input costs and increased costs associated with the expansion of the global sales and distribution infrastructure.
Net sales for the Construction segment for increased 23.6 percent to $620.9 million versus the second quarter of 2007. Excluding the translation effect of foreign currency exchange rate changes of approximately $44 million and acquisition related sales during the second quarter of 2008 of $58.5 million, net sales increased approximately 3 percent versus the prior-year period.
Weakness in the U.S. construction market continued in the quarter, while compact construction equipment sales slowed in Western Europe. Demand remains solid for rigid-frame dump trucks as well as material handlers (a product used by scrap steel yards). Additionally, demand trends in developing markets remain favorable for construction, particularly in the Middle East, Africa and Eastern Europe.
Construction operating margin decreased to 2.8 percent for the second quarter of 2008 from 4.7 percent for the comparable period in 2007. Rising input costs pressured operating margin during the quarter. Additionally, investments in global sales and support structure, as well as initiatives in aftermarket services and engineering, continue to progress, and are expected to contribute to operating margin expansion over the next two to three years.
Net sales for the Cranes segment for 2Q08 increased 48.7 percent versus the second quarter of 2007, to $809.8 million. Excluding the translation effect of foreign currency exchange rate changes, net sales increased approximately 34 percent. Global infrastructure and energy demand continues to drive strong sales of cranes, particularly larger capacity lattice boom crawler cranes, tower cranes and rough-terrain cranes. The North American market remains strong for large-capacity cranes, but sales of smaller capacity cranes, including boom trucks and lower capacity truck cranes, remain soft.
Cranes operating margin increased to 15.6 percent during the second quarter of 2008, up from 10.4 percent in the comparable prior year period. The increase was primarily driven by higher volume and favorable sales mix, combined with historical pricing actions working through the backlog. Cranes mix in the quarter was oriented towards higher margin larger capacity cranes. Supplier constraints in Europe for select components, such as hydraulics and gear boxes, have improved, as have welding and assembly capacity constraints.
Capacity changes are being implemented in the company’s cranes facilities, which are expected to increase throughput while minimizing the addition of fixed costs. For example, production of rough-terrain cranes in the company’s Waverly, Iowa, facility has already doubled in the past year as a result of efficiency gains with no increase in square footage. Future throughput improvements are expected in the company’s German and Chinese crane manufacturing locations.
Net sales for the Roadbuilding, Utility Products and Other segment for 2Q08 increased 13.3 percent, to $191.3 million, versus the second quarter of 2007. Excluding the translation effect of foreign currency exchange rate changes, net sales increased approximately 11 percent. The Utility Products, Roadbuilding and Government Programs businesses all witnessed sales growth, although concrete mixer truck sales were essentially flat when compared to the second quarter of 2007.
Trends in the company’s Utility Products business are positive. Roadbuilding net sales remained soft, as U.S. infrastructure spending remains weak, resulting in the continued implementation of cost containment strategies within this business. The company will continue to monitor the estimated fair value of the Roadbuilding business for purposes of determining whether a goodwill impairment is evidenced.
“Our global and product diversification has allowed the company to perform well despite the difficult economic conditions in the U.S., softening of the markets in Western Europe and increasing input costs,” DeFeo said. “Demand remains strong for many of our products, and we are continuing to invest in our business for today and tomorrow, particularly in developing markets such as China and India. We expect world demand for infrastructure, energy and mining products to continue, while at the same time we are positioning our businesses for the eventual recovery in the U.S. market. We remain confident in our ability to achieve our previously stated goal of ‘12 by 12 in 10’, which is $12 billion in revenues with a 12-percent operating margin by 2010. By quickly adapting to changing market conditions in all of our segments and geographies, we are showing that we can provide products that meet our customers’ needs worldwide, and at the same time improve our financial performance and invest in growth for the company.
“We expect our performance for 2008 to be within our previously announced range for earnings per share of $6.85 to $7.15 and net sales of $10.5 to $10.9 billion. We expect strong infrastructure and commodity demand trends for our Cranes and MPM segments to continue, which will drive a higher portion of our net sales and income for the balance of 2008.”
Headquartered in Westport, Conn., Terex Corp. is a diversified global manufacturer with 2007 net sales of more than $9.1 billion. Terex operates in five business segments: Terex Aerial Work Platforms, Terex Construction, Terex Cranes, Terex Materials Processing & Mining, and Terex Roadbuilding, Utility Products and Other. Terex manufactures a broad range of equipment for use in construction, infrastructure, quarrying, surface mining, shipping, transportation, refining and utility industries.