Terex Corporation Q1 2010 Earnings Call Transcript

Terex Corporation Q1 2010 Earnings Call Transcript
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Terex Corporation. (TEX)

Q1 2010 Earnings Call

April 22, 2010; 08:30am ET

Executives

Ronald DeFeo - Chairman & Chief Executive Officer

Phil Widman - Senior Vice President & Chief Financial Officer

Tom Riordan - President & Chief Operating Officer

Rick Nichols - President of the Cranes Business

Tim Ford - President of the Aerial Work Platform Business

George Ellis - President of the Construction Business

Kieran Hegarty - President of the Materials Processing Business

Steve Filipov - President of the Developing Markets Business.

Tom Gelston - Vice President of Investor Relations

Analysts

David Raso - ISI Group

Seth Weber - RBC Capital Markets

Charles Brady - BMO Capital Markets

Tom Brinkman - BMO Capital Markets

Jami Kirk - Credit Suisse

Ann Duignan - JP Morgan

Alex Blanton - Ingalls & Snyder

Meredith Taylor - Barclays Capital

David Wells - Thompson Research Group

David Wells - Thompson Research Group

Matt Toyosso - Barclays Capital

Brian Rayle - Northcoast Research

Andrew Casey - Wells Fargo Securities

Joel Tiss - Buckingham Research

Robert Mccarthy - Robert W. Baird

Steve Barger - KeyBanc Capital Markets

Presentation

Operator

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Good morning. My name is Amanda and I’ll be your conference operator today. At this time I would like to welcome everyone to the Terex Corporation’s, first quarter 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. (Operator Instructions)

Mr. DeFeo, you may begin the conference.

Ronald M. DeFeo

Thank you. Good morning ladies and gentlemen, and thank you for your interest in Terex today.

On the call with me this morning is Phil Widman, our Senior Vice President and Chief Financial Officer; Tom Riordan, the company's President and Chief Operating Officer; Tom Gelston, Vice President of Investor Relations, and participating in the room with me today is Rick Nichols, President of our Cranes business; Tim Ford, President of our Aerial Work Platform Business; George Ellis is on the call from the Bahamas shore, President of our Construction Business; Kieran Hegarty, President of our Materials Processing Business; Steve Filipov is in the room. He’s President of our Developing Markets Business.

A replay of the call will be archived on the company's website under audio archives in the Investor Relations section.

I'd like to begin with some opening commentary followed by Mr. Widman and Mr. Riordan who would discuss specific performance by the business overall and by segments. Then we’ll open it up for questions. I would encourage you to ask only one question and a follow-up.

We will be referring to a presentation on the company’s website as we go through this morning’s presentation. Let me begin by referring to the forward-looking statement on page two, which I encourage you to both review and read.

So now let me start with an overview. The first quarter performance for Terex was generally in line with our expectations. The net sales performance was relatively stable with the fourth quarter performance of 2009, and while on a year-over-year basis, revenue was down 17%. This was expected, and this decline removes the impact of both currency and the benefit from the Terex port equipment business acquisition.

In 2009, in the first quarter we were still selling down our previously high backlogs. Going forward, we have seen our backlogs begin to grow almost everywhere, expect in our crane business where we continue to see some near term weakness. As a general rule, our production schedules have increased meaningfully. This is positive and in line with expectations.

We are now building product and quantities generally consistent with our retail demand. Our cost structure has continued to come down, but we have had some additional restructuring that would be detailed in Phil and Tom’s comments.

As you know, the mining sale netted us a gain of approximately $620 million or $5.72 per share in the quarter. As we’ve looked to the full year 2010, we expect an EPS loss of about $1 per share, excluding the impact of unusual items and this has not changed from our previous report.

What we hear and seek in our market place is encouraging for the future. We expect the years 2011 through 2013 at least, to be strong growth years for our industry, and in particular for our products which are in a slightly different cycle typically than some of our other competitors or other industry colleague’s product lines.

So now let me turn it to Mr. Widman who will summarize our financial performance for our continuing operations. Phil.

Phil Widman

Thanks Ron and good morning everyone. The key figures tabled on page four displays the quarterly year-over-year and sequential performance for the continuing operations of the company. Given the sale of our Atlas business in April, their results have been included in discontinued operations for all periods that I will refer.

Net sales were down 3% from the prior year quarter or 9% when adjusting for the translation on impact with foreign currency movements. The addition of the port equipment business provided an 8% uplift to net sales in the period, and on a sequential basis, first quarter net sales decreased by 7%, virtually all related to the timing of deliveries of large crawler cranes and some softness in our all-terrain crane basis, as other segments were flat to modestly up.

We incurred a loss from operations in the first quarter of $67 million, compared to $111 million in the prior year quarter. The negative effect of the net sales decline was more than offset by reduced spending and favorable manufacturing absorption, which I will cover in more detail in two slides.

Adjusting for currency movement, working capital was flat with the year-end 2009, as increased payables from Heighten manufacturing activity more than offset some inventory build. Net debt improvement to a $172 million reflects the cash proceeds received on the mining business divestiture, reduced by our use of cash from operating activities in the quarter.

Overall liquidity was approximately $2.3 billion, with cash balances of $1.8 billion, and availability under our revolving facility of $500 million, provides significant flexibility to put cash to work to yield higher returns and accelerate growth, as well as be opportunistic on acquisitions should they become actionable.

On page five you will note that our overall backlog is similar to fourth quarter 2009 levels, and down 24% from the first quarter of 2009. Cranes backlog declined from both reference periods, mainly due to softening in the all-terrain demand, and the delivery of port equipment as they have began to catch up on production. All other segments showed improving backlog trends.

Net interest expense increased over the prior year due to the second quarter 2009 capital market’s transactions. The change in other expense from the prior period is largely due to the mark-to-market of derivative instruments intended to partially mitigate risks, associated with the 5.8 million shares of the Bucyrus International common stock acquired in connection with the mining divestiture. We will have this adjustment each quarter until the derivatives expire.

The effective tax rate in the first quarter was approximately 32%, reflecting some mix of jurisdictional income and reduce certain tax provisions relative to last year’s first quarter. The fourth quarter of 2009 had a reduced benefit by comparisons with the discreet charges related to uncertain tax provisions and evaluation allowance on the deferred tax assets of the European operation. We currently expect the 2010 effective tax rate to be approximately 24%.

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