Westport, Conn.-based Terex Corp. last week announced income from continuing operations for the first quarter of 2007 of $113.8 million, or $1.09 per share, compared to income from continuing operations of $76.9 million, or $0.75 per share, for the first quarter of 2006.
Income from continuing operations for the first quarter of 2007 included a $12.5 million pretax charge related to the early extinguishment of the company’s 9 ¼ percent senior subordinated notes, which negatively impacted earnings per share by $0.08. Net sales reached $2.01 billion in the first quarter of 2007, an increase of 18.8 percent from $1.69 billion in the first quarter of 2006. The increase in net sales versus the prior-year period was favorably impacted 1.7 percent by an acquisition and 4.7 percent by the effect of currency exchange rates. All per share amounts are on a fully diluted basis.
“We continue to be very pleased with the strong performance of our overall business,” said Ron DeFeo, Terex’s chairman and CEO. “Terex continues to mature, strengthen and be a more capable enterprise in all facets of its business. Given these continued steps forward, and a global economy that we anticipate to remain robust for the foreseeable future, we remain positive in the outlook for our financial performance.
“We gauge our financial progress as an organization by certain key metrics,” added DeFeo. “Of note this quarter, we made a 2.3 percentage point improvement in our gross margin, driven by a combination of better manufacturing leverage and the positive impact of pricing initiatives in excess of cost pressures. This results in an incremental gross margin of almost 33 percent. The improvements in gross margin translated to a strong increase in overall operating profitability, with operating margin increasing 1.6 percentage points over the comparable 2006 quarter, and results in a return on invested capital of approximately 39.7 percent for the 12 months ended March 31.”
Net sales for the Terex Aerial Work Platforms segment for the first quarter of 2007 increased $89.2 million, or 19.5 percent, to $547.7 million from $458.5 million in the first quarter of 2006. Strong international demand, particularly from Europe, drove the net sales increase, supported by solid demand fundamentals in the U.S. market, the company said.
“With regard to the U.S. market, demand remains quite favorable,” said Tim Ford, president – Terex Aerial Work Platforms. “However, unlike the previous two years, where customers ordered early in the year to ensure delivery, industry-wide supply has generally come into balance with demand. International demand is exceedingly strong. In response, we allocated a significant amount of our first-quarter production to international markets, particularly Western Europe. We continue to forecast strong international growth for 2007, favorably driving results for our segment.”
Net sales in the Terex Construction segment for the first quarter of 2007 increased $74.3 million, or 22.3 percent, to $407.8 million from $333.5 million in the first quarter of 2006. Strong global non-residential construction trends drove the net sales increase, with particular strength in Europe for compact construction equipment and globally for heavy trucks. In addition, the impact of currency exchange rates accounted for approximately one third of the net sales increase. Backlog increased $348.6 million as compared to the first quarter of 2006, impacted by both strong customer demand, particularly in Europe, and certain supplier constraints that limited the company’s production capability in the quarter.
“Overall, demand for our products remains strong,” said Robert Isaman, president - Terex Construction. “We are seeing a continued general softening in the U.S. market for compact construction equipment, but this has been more than offset by strong demand for compact construction equipment in Germany and Europe in general. The Terex Construction segment has a much stronger presence in Europe than in North America, so we should continue to benefit from the strong and growing demand in Europe as these economies continue to expand.”
Net sales in the Terex Cranes segment for the first quarter of 2007 increased $132.1 million to $500.8 million from $368.7 million in the first quarter of 2006, reflecting improvement in all product categories and expansion into the Asian market, as well as the favorable impact of currency exchange rates. Terex’s acquisition of a controlling 50-percent ownership interest in a Chinese crane manufacturer in April 2006 accounts for approximately one-fifth of the growth in net sales in the quarter. Excluding the impact of currency exchange rates and this acquisition, net sales grew approximately 22 percent.
“The market for cranes worldwide remains outstanding, with increasing global demand for our products resulting in a historically high level of backlog,” said Steve Filipov, president - Terex Cranes. “More specifically, demand in North America continues to be strong, and increasing infrastructure and energy related requirements in emerging economies are also driving demand.”
Net sales for the Terex Materials Processing & Mining segment for the first quarter of 2007 increased $14.4 million to $395.3 million from $380.9 million in the first quarter of 2006. The increase in net sales was attributable to the continued growth of the mobile crushing and screening product lines, as well as increased sales from drilling products, and the impact of currency exchange rates, offset by a softer than anticipated first quarter for larger mining equipment.
Net sales for the Terex Roadbuilding, Utility Products and Other segment for the first quarter of 2007 were essentially flat at $178.8 million, versus $179.0 million for the first quarter of 2006.
“In the quarter, we recognized losses of $3.5 million related to the continued wind down of the company’s re-rental fleet and certain charges incurred with respect to a distribution joint venture which we consolidate within this segment,” said Tom Riordan, Terex’s president and chief operating officer. “We would anticipate the results of this business segment in the future to more closely reflect the improving trends of the roadbuilding and utility product end-markets.”
“We continue to benefit from an operating environment that is poised to produce another year of significant growth, as evidenced by our backlog of approximately $3.4 billion at the end of the first quarter of 2007, up 56 percent from our backlog at March 31, 2006,” Riordan said. “Our North American crane businesses, specifically rough-terrain cranes and boom trucks, rebounded sharply in terms of demand compared with this same time last year, and the backlog for our German large crawler cranes has increased in response to large infrastructure projects in Asia, the Middle East and Africa. Both our Construction and Aerial Work Platforms businesses are experiencing rapidly increasing European demand. While backlog is an indicator that highlights demand and production capabilities, both good and bad, we are encouraged by the high level of order activity surrounding Terex products.”
In February, the company announced 2007 earnings guidance between $5.00 and $5.40 per share, including the impact of certain one-time items such as the costs associated with the early retirement of debt, and said it expected net sales to be between $8.2 and $8.5 billion.
“This would represent a 29- to 39-percent EPS increase versus 2006,” DeFeo said. “Given our performance this quarter, balanced with the uncertainties surrounding a few of our end markets, we now anticipate sales and earnings per share for 2007 to be at the high end of our previously provided range. We remain confident about our business prospects for the remainder of 2007.”
