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Title: Terex Q3 2010 Earnings Call Transcript

Symbol: TEX

Call Start: 10:00

Call End: 11:24

Terex (

TEX

)

Q3 2010 Earnings Call

October 21, 2010 8:30 am ET

Executives

Ron DeFeo - CEO

Phil Widman - SVP and CFO

Tom Riordan - President and COO

Tim Ford - President, Aerial Work Platforms

Tom Gelston - VP, Investor Relations

Rick Nichols - President, Cranes

TheStreet Recommends

George Ellis - President, Construction

Analysts

Jamie Cook - Credit Suisse

Meredith Taylor - Barclays Capital

Jerry Revich - Goldman Sachs

Henry Kirn - UBS

Charlie Brady - BMO Capital Markets

Ann Duignan - JPMorgan

Andrew Obin - Merrill Lynch

Robert Wertheimer - Morgan Stanley

Seth Weber - RBC

David Wells - Thompson Research Group

Robert McCarthy - Robert W. Baird and Company

Matt Vittorioso - Barclays Capital

Joel Tiss - Buckingham Research Group Inc

Presentation

Operator

Welcome everyone to the Terex Corporation's 2010 Third Quarter Financial Results Conference Call. (Operator Instructions).

I would now turn the call over Ron DeFeo, Chairman and CEO of Terex. Please go ahead, sir.

Ron DeFeo

Compare to:
Previous Statements by TEX
» Terex Q2 2010 Earnings Call Transcript
» Terex Corporation Q1 2010 Earnings Call Transcript
» Terex Corporation Q4 2009 Earnings Call Transcript
» Terex Corporation Q3 2009 Earnings Call Transcript

Good morning ladies and gentlemen, and thank you for your interest in Terex today. On the call with me this morning is Phil Widman, Senior Vice President and Chief Financial Officer; Tom Riordan, the company's President and Chief Operating Officer; as well as Tom Gelston, Vice President of Investor Relations. Also participating on the call and available for your questions and the follow-up period will be Rick Nichols for our Crane segment; Tim Ford for Aerial Work Platforms; George Ellis for the Construction business; Kieran Hegarty for Materials Processing and [Steve Filipov] for Developing Markets.

A replay of the call will be archived on the company's website www.terex.com under audio archives in the Investor Relations section. I would like to begin with few opening comments followed by Phil, who will provide more detailed financial report and Tom, who will discuss operations by segment. Then we will follow it up with your questions during the Q&A portion, please ask one question and a follow-up. The presentation we will be referring to is accessible on the company's website. Let me begin by referring to the forward-looking statement on Page 2, which I encourage you to review and to read.

Turning to Page 3, which is marked overview. Our third quarter operating performance was mostly in line with our expectations although our Crane revenue deteriorated faster than we have expected. Net sales for the quarter were flat versus the sequential second quarter period and up approximately 15% with prior year. The results were quiet mixed with stronger revenue performances in three segments AWP, Constructions and Materials Processing, the Cranes actually declined both from Q2 and last year.

We experienced solid backlog growth in all segments expect Cranes versus the prior year and most of the Crane weakness came from our All-Terrain and Crawler products that we produced in Europe and we will discuss this further in the call. We had continued strong quotation activity in Port Equipment, but as you know most of the quotations we make today are for delivery in late 2011 and 2012.

Our production schedules overall in the company continue to increase in most of our businesses and this has been the primary contributor to the year-over-year operating profit change, as we returned to a more stable production environment. Some additional restructuring activities are expected in Construction and Cranes, but these should be relatively small.

Looking forward, we expect the fourth quarter to reflect strengthening order trends in Aerial Work Platforms, Construction and Materials Processing, but with the weaker Cranes business than we had previously anticipated. Given the backlog in Cranes, however, we do expect a meaningful sequential net sales

increase in the fourth quarter. Overall, we expect net sales to increase approximately 10% to 15% sequentially and to generate an operating profit of roughly $15 million in the fourth quarter excluding unusual items.

The mid and longer term expectations for Terex remain unchanged and we are encouraged with our prospects. We will continue to invest in developing markets and in the systems required to run our business better.

Our AWP, Construction and Materials Processing customers are frankly quiet upbeat for 2011 and we expect Cranes to be relatively flat versus 2010. We are not in position to set overall expectations for 2011, but we do expect it will be a profitable year. A further more, we expect to reinvest our cash in the business, repay additional debt or a combination of both in 2011.

Now, I would like to turn it over to Phil, who will cover the numbers and debt. Phil?

Phil Widman

The table on Page 4 displays the quarterly year-over-year and sequential performance for the continuing operations of the company. Net sales increased 15% from the prior year quarter and were flat sequentially. Excluding the translation effect of foreign currency exchange rates changes, net sales increased 19%, compared to the prior year quarter. However, sequentially there was no significant impact.

Generally, the increases included all segments except Cranes, which continue to experience softening demand in certain product areas mainly All-Terrain and Crawler Cranes. We had income from operations of $3 million in the third quarter compared to a loss of $100 million in the prior year quarter.

Increased production levels, cost reductions and volume increases favorably impacted the comparisons to the prior year quarter. Sequentially, the three recovering segments of AWP, Materials Processing and Construction provided the uplifted volume to more than offset the Cranes decline.

Working capital increased in the third quarter by $246 million more than the third of this relates to the translation effect of foreign currency exchange rates changes, with remainders spread across the segments that was the in Cranes majority of the impact.

The recovering segments are increasingly building to higher expect demand. Cranes on the other hand experienced customer cancellation and shipment delays, which pushed the working capital higher than our expectations. We expect to reduce working capital in our Cranes segment as production and demand get more in line. Balancing this with some increase in the recovering segments should improve our working capital of the sales ratio as Cranes typically as the higher ratio than the other segments.

Net debt increased to $619 million mainly due to working capital build in the period and capital spending partially offset by the positive translation effect of foreign denominated cash balances. Overall, liquidity remains strong at $1.86 billion with cash balances of $1.35 billion and availability under our revolving facility of slightly over $500 million.

During October we repaid approximately $270 million of term debt consistent with the terms of bank amendment, we recently completed. We have also launched offers to purchase at par the outstanding 10 and 7/8 senior notes and 7 and 3/8 senior subordinated notes with net available cash from the sale of the mining business. To the extent these offers are not accepted by November 3rd when they expire the remaining cash will be available for general corporate purposes.

Page 5 displays other financial items for comparison purposes. The other expense in the period, which consistent with prior periods includes the marking to market of our derivative instruments intended to partially mitigated price risk associated with the Bucyrus international shares we received for the mining sale earlier this year. This amounted to expense of approximately $21 million in the quarter, as the Bucyrus share price rose during the period.

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