AWPs and Cranes Secure Strong Third Quarter for Terex
October 30, 2006 • Driven by strong results in the aerial work platform, crane, and material processing and mining segments, Terex Corp.,
Net income for Q3 2006 included a $16.6 million pre-tax charge related to the early extinguishment of Terex's 10-3/8% senior subordinated notes and senior debt facilities, which negatively impacted earning per share by $0.11, and a loss on the disposition of the Tatra business, net of tax, of $7.7 million, which negatively impacted earnings per share by $0.07. All per share amounts reflect the July 2006 two-for-one split of the company's common stock and are on a fully diluted basis.
Net sales for Terex increased by 27.4% from 2005, reaching $1.9 billion for the third quarter of 2006. Debt, less cash, and cash equivalents decreased by $206.9 million from levels in Dec. 31, 2005, reflecting strong earnings from operations and the sale of the company's interest in Tatra, partially offset by increases in working capital, a call premium on the early extinguishment of debt, and period capital expenditures.
"We continue to be pleased with our results, and we remain optimistic about our performance going forward," said Ronald M. DeFeo, Terex's chairman and chief executive officer. "We reported operating margins that were 3.1% points greater than in the third quarter of 2005, and for the second consecutive quarter had an operating margin of at least 10.0%.”
Business segments
As previously announced, commencing with the first quarter of 2006, Terex has realigned certain operations in an effort to strengthen its ability to service customers and to recognize certain organizational efficiencies. The European telehandler business, formerly part of the Terex construction segment, is now part of the Terex aerial work platforms segment. The comparative segment performance data below reflects this current organization, and prior period amounts have been reclassified to conform with this presentation.
Aerial work platforms
Net sales for the Terex aerial work platforms segment for the third quarter of 2006 increased $154.8 million, or 40%, to $538.2 million from $383.4 million in the third quarter of 2005. The increase in net sales was driven by continued strong order activity from the rental market, including demand for the company's telehandler product line, and increasing demand from international markets. Gross margin for the quarter was 25.4%, compared to 20.6% for the quarter ended Sept. 30, 2005, and was favorably impacted by pricing actions and volume increases, partially offset by continued cost pressures. Income from operations increased to $99.1 million, or 18.4% of sales, in the third quarter of 2006, from $51.3 million, or 13.4% of sales, in the third quarter of 2005.
“Our net sales were up over 40% compared to the third quarter of 2005, and the strength we are seeing in our various end-markets indicates that we can expect continued good performance as we enter into the 2007 order season,” said Bob Wilkerson, Terex executive vice president. “Our international business is continuing to become a more significant component of our sales and profitability, with over one-third of our revenue coming from these markets. Our telehandler product line posted another quarter of growth and profitability, with revenue up modestly versus third quarter 2005 results. The growth rate for telehandlers decreased from what we experienced in the second quarter of this year due to the normal seasonal slowdown."
Cranes
Net sales in the Terex Cranes segment for the third quarter of 2006 increased $140 million, or 48%, to $429.0 million from $289.0 million in the third quarter of 2005, reflecting improvement in all crane product categories. Excluding the acquisition of a 50% interest in a Chinese crane manufacturer in April 2006, net sales grew 41% in the third quarter of 2006 versus the same quarter in 2005. Gross margin for the quarter was 16.8%, compared to 12.7% for the quarter ended Sept. 30, 2005, and was favorably impacted by pricing actions and volume leverage on manufacturing costs, although partially offset by continued cost pressures. SG&A expenses increased in the third quarter of 2006, mainly due to higher sales levels, to $33.0 million, or 7.7% of sales, which is lower as a percentage of sales when compared to the third quarter of 2005 rate of 8.4% on $24.2 million of SG&A expenses. Income from operations increased $26.4 million to $38.9 million, or 9.1% of sales, for the third quarter of 2006, from $12.5 million, or 4.3% of net sales, for the third quarter of 2005.
"The Terex Cranes segment had another excellent quarter, considering this seasonally slow period with reduced production levels at our European operations,” said Steve Filipov, president, Terex Cranes. "More importantly, operating profit more than tripled over the prior year's results. The performance improvements continued to come from all businesses, with all product lines contributing significantly.”
According to Filipov, operating results were impacted by a retrofit program on two models in the Terex all-terrain crane product line. The Chinese operation, Sichuan Changjiang Engineering Crane Co, Ltd., also contributed favorably to this quarter's result. He said that Terex is on track in integrating the Terex Business System approach at Sichuan Changjiang Engineering Crane Co. and has started to utilize local supply chain and distribution synergies to continue to diversify its global franchise.
Filipov added that Terex Cranes' backlog continues to climb, which is a positive sign of the demand for our crane products, but customers are in need of products now, so the company is continuing to concentrate on improvements in manufacturing and component supply in order to improve our production rates. “Our overall goal remains a simple one: We will continue to concentrate on putting the customer first and delivering top quality products around the globe in a timely manner,” he said.
