Terex Reports Net Sales Increase for AWPs and Cranes in Q1 2007

April 26, 2007 • Terex Corp., Westport, Conn., reported its first quarter 2007 results this week, which included a 19.5 percent net sales increase in the aerial work platform segment and an increase of 22 percent in the crane segment.

 

For the Terex Corp., income from continuing operations was $113.8 million, compared to $76.9 million from the same time last year. 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, which was favorably impacted 1.7 percent by an acquisition and 4.7 percent by the effect of currency exchange rates.

 

“Terex continues to mature, strengthen and be a more capable enterprise in all facets of its business,” commented Ronald DeFeo, chairman and CEO. “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."

 

He noted that in the first quarter of 2007, Terex made a 2.3 percentage point improvement in its gross margin, which was 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.

 

“While the overall performance of our business was positive, we need to increase our vigilance and focus on reducing working capital in our businesses,” said Tom Riordan, Terex's president and chief operating officer, commented. “Our working capital remains higher than we would like, highlighting the operational and production challenges that we need to face going forward, including improving production and supplier scheduling coordination and capability.”

 

Riordan added that Terex continues to benefit from an operating environment that is poised to produce another year of significant growth, as evidenced by its backlog of approximately $3.4 billion at the end of the first quarter of 2007, up 56 percent from its backlog on March 31, 2006.

 

“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,” he said. “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, Terex provided earnings guidance for its 2007 performance, indicating that it anticipated earnings per share to be between $5.00 and $5.40 per share, and it expected net sales to be between $8.2 and $8.5 billion. This would represent a 29-39 percent EPS increase versus 2006. “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,” DeFeo said.

 

Terex Aerial Work Platforms

In the aerial work platform segment, U.S. and international demand • particularly in Europe • drove net sales up $89.2 million to $547.7 million from $458.5 million in the first quarter of 2006. Gross margin for the quarter was 26.7 percent, compared to 25.5 percent for the quarter ended March 31, 2006, and was favorably impacted by continued production efficiencies, increased net sales volume, and the effect of prior pricing actions in international markets. Income from operations increased to $99.3 million, or 18.1 percent for the first quarter of 2007, from $79.9 million, or 17.4 percent of net sales, in the first quarter of 2006.

 

SG&A expenses for Q1 2007 were $47.1 million, or 8.6 percent of net sales, compared to $37.1 million, or 8.1 percent of net sales, for Q1 2006. The increase was due to expenditures to support the growth of the European market and the recently opened Middle East sales and service office, combined with increased trade show expenses that incurred primarily in the United States. Income from operations increased to $99.3 million, or 18.1% of net sales, in the first quarter of 2007, from $79.9 million, or 17.4% of net sales, in the first quarter of 2006.

 

“The Terex AWP team is pleased with the overall results achieved for the first quarter,” said Tim Ford, president of Terex Aerial Work Platforms. “With regard to the U.S. market, demand remains quite favorable.” He noted that 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,” Ford added. “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.” One of the challenges for the company is the time required to ship products from U.S. manufacturing sites to our overseas customers, he said. “We are addressing this by producing aerial work platforms in Europe,” he said. “We began production this April of a Z-boom product at our facility in Italy, and a second Z-boom model is slated to begin production there later in the year.”

 

Reflecting the shift in demand, Terex AWP working capital has increased as the amount of finished goods in transit to international markets has increased, Ford said, adding that the company expects to operate with a higher level of working capital than we have historically required until we achieve a more significant level of production in Europe.

 

Terex Cranes

Net sales in Terex Cranes for the first quarter of 2007 increased $132.1 million to $500.8 million from $368.7 million in the first quarter of 2006. These numbers reflect improvements in all product categories and expansion into the Asian market, as well as the favorable impact of currency exchange rates.

 

Terex's acquisition to control 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 the acquisition, net sales grew approximately 22 percent.

 

Income from operations was positively impacted by higher sales volume and prior pricing actions, resulting in an increase of $27 million to $53 million, or 10.6 percent of sales, for the first quarter of 2007. This is up from $26 million, or 7.1 percent of sales, for the first quarter of 2006.

 

SG&A expenses increased in the Q1 2007 to $46.6 million, or 9.3 percent of sales, higher as a percentage of sales when compared to the Q1 2006 rate of 7.9 percent on $29.2 million of SG&A expenses. This was mainly due to increased investment in sales and administrative infrastructure to support increasing sales and production volumes, a $4.5 million increase in the corporate expense allocation, the impact of currency exchange rates, and the Chinese crane acquisition.

 

“Overall, the Terex Cranes segment continued to build on the significant internal growth experienced in 2006," commented Steve Filipov, president of Terex Cranes. “The market for cranes worldwide remains outstanding, with increasing global demand for our products resulting in a historically high level of backlog. More specifically, demand in North America continues to be strong, and increasing infrastructure and energy-related requirements in emerging economies are also driving demand.”

 

The challenge the crane segment faces is meeting this demand, Filipov added. “Our factory performance continues to improve, best reflected by our income from operations for the first quarter of 2007 having more than doubled from the first quarter of 2006 on sales growth of 36 percent,” he said. “Despite factory performance improvements in all crane product categories, the unprecedented current demand continues to stress our supply chain and our internal operations, such as welding capabilities. We have addressed and will continue to address the limited supply of certain components and production bottlenecks through improved coordination with our suppliers and implementation of lean principles to better utilize our manufacturing footprint. Our ability to rapidly succeed on these productivity improvement initiatives creates continued room to drive significant financial improvements going forward."