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Terex Misses the Mark
Terex (NYSE:TEX), a global manufacturer of construction equipment, reported third quarter results that missed the mark due to weaker than expected numbers from the cranes division as well as slackening demand in Europe. For the third quarter, Terex reported a net loss of $89 million, or 82 cents per share. That compared with a net loss of $106 million, or 98 cents per share, a year ago. Despite the improvement in the quarter, analysts were looking for more, especially since the numbers from construction giant Caterpillar (NYSE:CAT) continue to be solid.
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Looking Ahead
To be sure, the 2010 third quarter was affected by various derivative charges relating to 5.8 million shares of stock in Bucyrus International (Nasdaq:BUCY) that Terex received when it sold its Mining division to Bucyrus. In addition to other tax provisions, the third quarter losses were affected by 48 cents. Despite the poor operating performance, Terex delivered a 15% increase in net sales to $1.07 billion in the quarter versus $933 million a year ago. Terex managed to earn a slight operating profit of $3 million, a substantial reversal from the $100 million operating loss a year ago.
The company's guidance of a 15% sequential sales increase in the fourth quarter, along with operating income of $15 million, was well below what analysts were expecting. Management indicated that based on these figures, Terex would not be able to generate net income in the fourth quarter.
Slowly But Surely
Management, however, continued to reaffirm the long-term prospects of the company. It indicated that its customers are becoming more confident and that business is slowly growing in each category. They expect the Cranes division, which experienced a 16% drop in sales in the third quarter, to hit bottom in 2011. (For related reading, see The Best Business To Be In During A Recovery.) Without setting expectations, management feels that Terex will return to profitability in 2011. The company currently has a market cap of $2.5 billion and through shrewd cash management, the company has virtually no net debt. It's also generating sales at an annual run rate of $4.4 billion, almost twice its market cap.
If the company can generate a 5% net margin next year and sales reach $5 billion, Terex will earn $250 million. Against today's market cap and equity of $2 billion, that's a P/E ratio of 10 and a ROE of 12.5%, respectively. By comparison, Caterpillar sports a P/E ratio of 31, while Deere (NYSE:DE) commands a 28 multiple.
The Bottom Line
Despite the weaker than anticipated quarter, Terex management has successfully executed its efforts to reshape the company and adapt to the economic recession. Management continues to be patient and so should investors if they want to benefit from this stock's future growth.
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IN PICTURES: 8 Ways To Survive A Market Downturn
Looking Ahead
To be sure, the 2010 third quarter was affected by various derivative charges relating to 5.8 million shares of stock in Bucyrus International (Nasdaq:BUCY) that Terex received when it sold its Mining division to Bucyrus. In addition to other tax provisions, the third quarter losses were affected by 48 cents. Despite the poor operating performance, Terex delivered a 15% increase in net sales to $1.07 billion in the quarter versus $933 million a year ago. Terex managed to earn a slight operating profit of $3 million, a substantial reversal from the $100 million operating loss a year ago.
The company's guidance of a 15% sequential sales increase in the fourth quarter, along with operating income of $15 million, was well below what analysts were expecting. Management indicated that based on these figures, Terex would not be able to generate net income in the fourth quarter.
Management, however, continued to reaffirm the long-term prospects of the company. It indicated that its customers are becoming more confident and that business is slowly growing in each category. They expect the Cranes division, which experienced a 16% drop in sales in the third quarter, to hit bottom in 2011. (For related reading, see The Best Business To Be In During A Recovery.) Without setting expectations, management feels that Terex will return to profitability in 2011. The company currently has a market cap of $2.5 billion and through shrewd cash management, the company has virtually no net debt. It's also generating sales at an annual run rate of $4.4 billion, almost twice its market cap.
If the company can generate a 5% net margin next year and sales reach $5 billion, Terex will earn $250 million. Against today's market cap and equity of $2 billion, that's a P/E ratio of 10 and a ROE of 12.5%, respectively. By comparison, Caterpillar sports a P/E ratio of 31, while Deere (NYSE:DE) commands a 28 multiple.
The Bottom Line
Despite the weaker than anticipated quarter, Terex management has successfully executed its efforts to reshape the company and adapt to the economic recession. Management continues to be patient and so should investors if they want to benefit from this stock's future growth.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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