Terex Corporation (NYSE: TEX) on Monday posted a sharp decline in quarterly profits as its biggest markets continued to shrink. The industrial equipment producer made progress at slimming down its portfolio and reducing costs, though, which helped it return to overall profitability after losing $74 million in the prior quarter.
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Here's a look at how the top- and bottom-line results compare to the prior-year period:
Source: Terex financial filings.
What happened at Terex this quarter?
Sales fell by 10%, which was consistent with management's late April forecast. Orders also sank across its portfolio, pointing to continued soft demand ahead.
Key highlights of the quarter include:
- The aerial work platform segment fell 14% on weakness in the U.S. construction markets. Operating margin in the division shrank to 12% of sales from 15%.
- The crane business declined by 16% and produced a net loss of $13 million, compared to a net profit of $21 million the prior year.
- Materials processing equipment posted improved sales and earnings while producing an uptick in orders. Mining clients pulled back on their spending, but that was more than offset by strength in crushing and screening machines.
- Overall order backlog fell 22%, or roughly on par with the prior quarter's pace.
- Operating income was cut in half to $73 million.
What management had to say
"Our second quarter results reflect a company in transition," CEO John Garrison said in a press release. Terex has agreed to slim down its portfolio by selling major pieces of its construction equipment segment along with its entire material handling and port solutions division. "Going forward, we will be a more focused company, centered around three segments: aerial work platform, cranes, and materials processing." The smaller profile will free up resources and make Terex a simpler business to steer through this weak selling environment.
Image source: Terex investor presentation.
Executives also promised more rounds of cost cuts ahead. "The steps we took earlier in the year to reduce SG&A helped offset some of the impact of soft markets and competitive pricing, but more is needed," Garrison said. "We are committed to reducing our cost structure," to reflect the new, smaller sales footprint.
Terex's outlook for the full year reflects the weak selling environment that management is seeing in many areas of the business. The aerial work platform division is still projected to shrink by 15%, but the segment's operating margin is now seen weighing in at 9% compared to the 11% that executives initially forecast. The same 15% pace of decline is expected for cranes, which also got a downgrade on expected profitability, from 4% to 2% operating margin.
On the positive side, materials processing should produce slightly higher profits through the rest of the year. Meanwhile, Garrison and his team boosted their cost cut outlook, which makes it less likely the company will report an overall loss.
The fact that backlog declined at a substantial rate provides no hint of an imminent pick up in Terex's key markets. In fact, management said that while there were "pockets of stability," many segments, including oil and gas and commodities, are continuing to struggle.
In that context investors can expect Terex to focus on lowering its cost profile over the coming months while completing the sale of its materials handling business.
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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Terex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.