Terex Announces Third-Quarter 2008 Results, Cost-reduction Moves

October 30, 2008 – Terex Corporation last week announced net income for the third quarter of 2008 of $93.8 million, or $0.96 per share, compared to net income of $151.5 million, or $1.45 per share, for the third quarter of 2007, a decrease in earnings per share of 33.8 percent.

 

These results include a $10.1 million after-tax, or $0.10 per share, charge related to a crane repair program, and charges associated with reductions in headcount of $2.2 million after-tax, or $0.02 per share. All per share amounts are on a fully diluted basis.

 

Net sales in the third quarter of 2008 grew 14.5%, to $2,514.6 million, versus the comparable period in 2007. The increase in net sales versus the prior year period was favorably impacted by acquisitions and by the translation effect of foreign currency exchange rate changes (3.6% and 4.9%, respectively). Excluding these effects, net sales increased 6.0% in the third quarter of 2008 versus the prior year period, driven primarily by strong performance in both the Cranes and Materials Processing & Mining (MPM) segments, partially offset by lower net sales in the Aerial Work Platforms (AWP) and Construction segments.

 

“While we continue to make progress on our improvement initiatives, the current environment is challenging, marked by a continued global credit crisis and worsening economic conditions, particularly in the U.S. and Western Europe,” stated Ron DeFeo, Terex chairman and chief executive officer. “Input costs continue to present challenges for us, although we expect these to moderate over time.”

           

DeFeo cited price increases, which have not yet fully offset total material cost increases, as another issue. “We are taking aggressive actions to better position the company for the expected reduced net sales levels of the next 12 months, in particular in the Aerial Work Platform (AWP), Construction, and Materials Processing businesses,” he said. “At the same time, we are continuing to invest in developing markets and our improvement initiatives, as well as increasing Cranes and Mining capabilities to meet the growing demand in those areas.”

 

DeFeo said the company expects 2009 net sales, including the effect of announced acquisitions, to be similar to 2008 full year net sales, driven by continued strong results in Cranes and Mining, and offset by lower net sales in AWP, Materials Processing and Construction. “The Cranes and Mining businesses continue to grow, in particular in developing markets, where we expect current positive trends to continue,” he said.

 

Beginning in the fourth quarter of 2008, for the next 12 months net sales for AWPs are expected to be down 30 percent to 40 percent ; Materials Processing, down 15 percent to 20 percent; and Construction, down 25 percent to 35 percent versus the prior 12-month period.  “In light of these overall expectations, we have taken or initiated several actions to properly size our organization and production levels,” announced DeFeo.  “Additionally, we have further heightened our focus on cash generation during this time of uncertain access to credit.”

 

Tom Riordan, Terex President and Chief Operating Officer, added, “We are taking a series of actions to aggressively reduce costs and inventories in the businesses listed below. We expect that by early 2009 we will achieve working capital levels closer to 22 percent of trailing three-month annualized net sales, versus the approximately 25 percent level we experienced at the end of the third quarter.”

 

AWP – In the third quarter, Terex reduced its global workforce by 6 percent compared to June 2008, not including the elimination of the AWP temporary agency workers in July 2008. In the fourth quarter, the company expects a further 18-percent workforce reduction, compared to June 2008, to better align its cost structure with expected customer demand. Additionally, temporary shutdowns of manufacturing facilities were implemented in the third quarter and will continue to be used to reduce production output. Terex will re-evaluate team member levels in the first quarter of 2009 based on customer order rates and production levels.

 

Construction – In the third quarter, actions included adjusting production lines to short-time work weeks and reducing 141 team members to match current market demand. Further reductions are expected to occur over the next three to six months to adjust the team member levels to meet expected customer demand. Terex expects a further 17-percent workforce reduction across worldwide operations.

 

Materials Processing – In the third quarter, production levels were cut by 25 percent of the first half 2008 run rate and, as a result, the company reduced independent contract manufacturing staffing levels. During the fourth quarter of 2008, production levels are projected to be reduced to roughly 50 percent of the first half 2008 levels, through the use of an extended winter shutdown, a shortened work week, further independent contractor reductions and an expected reduction of 160 team members.

 

Roadbuilding – In the third quarter, Terex reduced the workforce by 98 team members to adjust production levels and resources to meet expected customer demand.

 

Facility Rationalization – In addition to the above actions, facility plans are being reviewed to improve the utilization of existing facilities through consolidation, transfer or sale. The expectation is that these changes will take place in 2009.

 

Segment Realignment – Effective in January 2009, Terex will move its Roadbuilding businesses under the Construction segment and move the Utility Products business under the AWP segment. This will enable the company to capture market synergies and streamline cost structure in the U.S.

 

 â€œWe expect that these actions will reduce our long term cost structure in line with market requirements,” said Riordan.

 

Terex is revising its estimated fourth quarter 2008 earnings per share guidance to reflect changing market conditions, mainly in North America and Western Europe for the AWP and Construction segments, to between $0.80 and $0.90, resulting in full year 2008 earnings per share guidance between $5.69 and $5.79. Corresponding full year 2008 net sales are expected to be between $10.0 and $10.3 billion.

 

These estimates include a total of $0.12 per share in charges through the third quarter 2008 for the crane repair program and headcount reductions. The full year 2008 guidance does not include additional charges that may be required to implement further cost reduction activities. Management’s previous earnings per share guidance for the fourth quarter was between $1.20 and $1.33 and full year 2008 earnings per share guidance was between $6.35 and $6.65.