Terex To Gain From Portfolio Restructuring; Risks Remain
Zacks Investment Research | Nov 15, 2016 08:11PM ET
We have issued an updated research report on Terex Corporation (NYSE:TEX) on Nov 15. Performance of this Zacks Rank #3 (Hold) global equipment manufacturer is likely to be hurt by lower demand for replacement of machines and weak mining market. Nevertheless, the company will benefit from the transition into a more focused and simpler company by focusing on its product portfolio and cost-saving initiatives.
Terex’s third-quarter 2016 adjusted earnings plunged 57% year over year and fell short of the Zacks Consensus Estimate, primarily dragged down by the Cranes segment performance which continues to bear the brunt of challenging markets.
Terex is simplifying its organizational structure and continues to make progress on refocusing its portfolio. Streamlining the company’s operating structure from five segments to three simplified reporting and increased accountability while reducing the overhead structure. Terex completed the sale of its German compact construction business to Yanmar for $60 million in cash. Through the divestment, Terex will be able to focus on businesses that can consistently deliver returns in excess of cost of capital. Further, the company is on track to sell its Material Handling & Port Solutions business. The sale will provide greater financial flexibility to Terex.
The company is reviewing all aspects of its cost structure and has been taking actions to reduce costs. Savings from these actions will help negate challenging conditions in its markets. Further, the company is moving forward with the evaluation and simplification of its manufacturing footprint. Terex's performance is likely to be bolstered by continued traction in new, innovative products like Z-60 DC, FX 150 and the GTH-1256 models. Consequently, the company remains focused to develop new products and bring them into the marketplace. Terex believes that these initiatives will help drive revenues and strengthen its market position.
On the flipside, sales in the Aerial Works Platform segment will be hampered by the challenging market conditions, especially in North and South America, for the remainder of 2016. With lower demand for replacement of machines, Terex expects this trend to continue through 2017 and anticipates sales to be down approximately 13% in full-year 2016 from 2015. Further, the global Crane market continues to weaken due to a soft mining market as well as lower oil and gas prices. Consequently, the company lowered its full-year outlook for Cranes to a decline to approximately 20% within operating loss of approximately 2.5%.
Global pricing dynamics, geographical mix and lower production volumes offset in part by cost reduction actions will continue to pressure margins in the fourth quarter. The company continues to reduce cost base in the fourth quarter but it is likely to be insufficient to compensate the impact of the challenges in the Cranes segment. The company is thus lowering its full-year sales outlook between $4.2 billion and $4.4 billion and earnings per share to a range of 70 cents to 80 cents.
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