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Bucyrus Posts Huge Shortfall; CEO Bullish

Bucyrus' first quarter profit misses Wall Street targets by a wide margin, but the mining equipment maker's CEO downplays the shortfall and says demand is building for its gear around the world.

(Bucyrus earnings story updated to correct the 2010 sales projection figure, per Thomson Reuters; the number is $3.35 billion, not $3.79 billion. Story is also updated to provide analyst commentary.)



) --



, the mining equipment maker, fell short of Wall Street targets by a wide margin when it reported first-quarter results after the market close Thursday, but the company's CEO is adamant that demand is building for Bucyrus' huge excavation gear.

The company, in the midst of integrating its

$1.3 billion acquisition



(TEX) - Get Terex Corporation Report

mining-machinery unit, reported adjusted earnings of 69 cents a share for the quarter.

Analysts on average were looking for 81 cents, according to various surveys of the sell side. All the numbers exclude results from the new Terex business, as well as costs related to the deal and the integration.

The miss derived largely from unexpected weakness in sales of equipment used in underground mining, as opposed to surface mineral excavation.

Bucyrus shares were under pressure Friday on heavy volume. In recent trades, the stock was changing hands at $67.88, down $2.93, or 4.1%. Turnover neared 6 million shares in afternoon action, double the daily average.

Bucyrus executives strove to downplay the shortfall -- as much as that was possible -- during a conference call with analysts and investors Friday morning. "Although obviously it was well below consensus, it was exactly on plan with our targets, without surprises," Bucyrus CEO Tim Sullivan said of the company's first-quarter profit.

Executives blamed the weak sales of underground machinery on "timing issues" related to shifting customer delivery schedules.

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Margins in that segment -- which produce machines to dig and construct mining shafts -- eroded during the quarter due to "under absorption," analysts say. Translated from the jargon, that means Bucyrus had ratched up its labor force in preparation for demand that never materialized, increasing costs.

Sullivan attempted to assure analysts on the call that his company was seeing stiff demand for its equipment among miners around the world, from Australia to Appalachia. "The market remains incredibly strong," Sullivan said. "We are having a very high level of activity right now, even though a lot of that hasn't led to bookings in the first quarter."

But bookings have already picked up and will continue to do so, Sullivan said. Buyers, he went on, were still cautious late in 2009 and early this year about the fragile global economy. "I think we'll see a lot of that caution go out the window this year."

Sullivan also issued sales and EBITDA guidance for the full year 2010. Sullivan said the company now expects a top line of $3.65 billion to $3.75 billion -- better than the consensus top line target of $3.35 billion, according to

Thomson Reuters


An earlier version of this story misreported the figure as $3.79 billion, which is the consensus target for 2011.

The Terex business, Sullivan said, is expected to contribute around $1.1 billion of the company's 2010 top line.

Sullivan said earnings before interest, taxes, depreciation and amortization will likely amount to $655 million to $680 million for the year.

Given the first-quarter shortfall, the company's fresh projections are fairly bullish, analysts say. To hit these new targets and make up for the weakness in the first three months of the year, the company must register a pick-up in order activity through the second quarter and beyond.

"We'll need to increase bookings in 2Q to meet our guidance, and we fully expect to do that," Sullivan told analysts on the conference call.

As for the first quarter, including Terex and related integration costs, Bucyrus earned $35 million, or 45 cents a share, on revenue of $607.5 million.

A year ago, the company posted earnings of $57 million, or 76 cents a share, on revenue of $605.7 million.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.