Higher Material Costs Weigh on Terex 4Q Results

February 11, 2011

Construction equipment maker Terex Corp.'s fourth-quarter revenue rose 31%, but higher material costs and price discounts on equipment contributed to a larger-than-expected loss from the quarter.

Moreover, the company's bottom-line outlook for the first quarter and 2011 were below analysts' expectations, despite evidence that the company's long-suffering end-markets in the construction sector are recovering.

"An improving business environment does not come without challenges," Chairman and Chief Executive Ron DeFeo said Wednesday. "We continue to face a recovery that brings competitive pricing, as well as increasing supply costs for components and raw materials."

Terex's product lines include cranes, self-propelled work platforms and compact construction equipment. Operating margins on Terex's machinery either weakened or improved only modestly from the third quarter, indicating the company paid more for materials and parts and faced pricing pressure on its own products.

Terex isn't alone in paying more for materials. Rising costs for steel, copper, aluminum and other materials squeezed fourth-quarter profits for most U.S. manufacturers, ending an extended period of tame input costs.

For the quarter ended Dec. 31, Terex reported a loss of $45.3 million, or 42 cents a share, compared with a year-earlier loss of $142.8 million, or $1.32 a share, a year earlier. The loss from continuing operations narrowed to 30 cents from 95 cents a share. Sales rose to $1.33 billion from $1.01 billion.

Although the company forecast in October it wouldn't turn a profit in the quarter, analysts expected a loss of 11 cents a share.

Terex predicted it would begin showing a profit in the second quarter of this year.

"With increases in backlog and order quotation activity, we are starting to see some positive operational catalysts," DeFeo said in a written statement. "We have increased production and anticipate further increases throughout 2011 to match the anticipated heightened demand for our products."

But the company's forecasts for the first quarter and full-year also were lower than anticipated. In the current quarter, the company predicted a loss of 10 cents to 15 cents a share, while analysts' estimated a 3-cent-per-share loss. For 2011, Terex expects to earn 60 cents to 70 cents a share on $5 billion to $5.4 billion in revenue.

Meanwhile, analysts surveyed by Thomson Reuters were anticipating 77 cents per share in earnings from $5.05 billion of revenue for the 2011 full year.

The Connecticut-based company sold its mining equipment business last year to Bucyrus International Inc. (BUCY) with the intent of using the sale proceeds to acquire other equipment manufacturers, particularly ones in financial distress. The strategy worked well for Terex in previous recessions, but DeFeo was unable to find deals he liked. The company now plans to pay down debt with the money from Bucyrus.

Terex's stock ended Wednesday's regular trading session down 1.18%, or 43 cents, at $36.06 a share. In after hours, trading, the stock slid 5.6%, or $2.04 a share, to $34.02.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Joan E. Solsman contributed to this report.)

Source: Wall Street Journal