Before I begin, however, I’d like to acknowledge the recent passing of John McGinty, a person who long covered Terex mainly as a sell-side coverage analyst and more recently on the investment banking side. He was an influential thought provider for over 30 years to our industry. He was an astute observer of trends, a friend of Terex, one that had a great and fun personality, and a person I respected very much. He will certainly be missed.I will begin with some overall commentary on current performance, as well as commentary on the market environment. Phil will follow me with a more detailed financial report, including an analysis of the Demag Cranes acquisition and the related accounting for this quarter. Following that, as usual, we’ll take your questions. We will enforce the one-question rule with a follow-up. That will allow as many people as possible to ask their most important questions within the timeframe of this call. As we’ve done in recent calls, we’ve prepared a presentation as a guide through our commentary. It was e-mailed last night to those on our investor relations contact distribution list and is available for download from our web site for those who do not have it. Let me begin by referring to the forward-looking statement commentary on Page 2, which I encourage you to read and review, as well as our other disclosures available in our public documents. Now let me turn to Page 3. This quarter we continued to improve performance. Net sales increased significantly with and without the Demag Cranes AG acquisition. But more importantly, in my opinion, the company performance improved in terms of profit and cash flow. More specifically, each of our segments showed increased sales versus the prior year’s period, led by the AWP segment at 59% growth, and the balance of the businesses reported between 20% and 50% growth. This is good performance in the face of what we believe are some less-than-certain times for the most part. But again, and more importantly, all the businesses improved in terms of profitability and we are looking for continued improvements in profitability, as actions we have taken are paying dividends and most evident in our Cranes segment over these results.
We continue to expect profit and cash improvement as a result of cost reduction activities and pricing actions across our various business segments. New this quarter is the inclusion of the Demag Cranes AG financial results, as we closed on our 82% equity ownership halfway through the quarter on August 16th. Going forward we will be referring to this business as our Material Handling & Port Solutions segment, and it will be reported as a stand-alone segment. While the current results were clouded by the effects of acquisition accounting, we’re very pleased with the performance of the business and we’re encouraged by the prospects of the different product lines – quite different product lines than Terex has for the most part.In terms of market conditions, we continue to see evidence of improving trends broadly, though the recovery isn’t even, or it isn’t consistent across all products and geographies. On the positive side, we see continued replacement-driven demand in most developed markets as well as continuing growth in most developing economies globally. We’ve seen some recent weaknesses in our Construction Truck and Mobile Crushing business, but it may be premature to determine if this is anything more than a pause. We continue to be impacted negatively by increased component costs for our products, particularly in the AWP business. As a result, we’ve initiated price increases on most products and moving into next year, we would expect price realization to exceed the pressure from cost increases and begin to improve margins further. Component and engine suppliers took prices up early, and for much of 2011, our customer pricing lagged. This is changing, plus we are going back to our supply base and requoting to get more cost reductions now. As expected, we are seeing improvements in suppliers’ ability to deliver what we need for production when we need it. But expect these to be mostly resolved by year-end. While we still have some issues to work through in our Construction segment, we are optimistic that next year we will have a more profit-focused business and we will focus much less on growth in Construction and more on profit and cash generation in this segment.
Lastly, we generated $106 million in free cash flow in the third quarter, as we were able to reduce our working capital investment and generate cash from profitability. We continue to expect meaningful free cash flow generation in the fourth quarter.Now let’s cover a few specific segment and market comments on Page 4. Our AWP business is predominantly supplying large North American rental companies, and we are seeing strong replacement fleet demand. We were expecting the smaller independent rental firms to be a larger percentage of the overall mix, but this has yet to occur and we still feel this shift will happen, although it’s difficult to say exactly when. The underlying trends of the industry, as measured by time utilization and rental rate increases, remain quite positive. The fleet age statistics continue to indicate a fleet that is relatively old with little ability to put off replacement, in our opinion. Outside North America, we’ve seen some early signs of a similar replacement beginning to take shape, although it may be premature to call it a trend. However, we do expect growth from markets like the U.K., Brazil, and Australia/Asia. We announced price increases effective January 2012. These will average 4.5% and when added to the increase taken this past June should offset the input cost pressures this business has been facing this year. The outlook in this segment, frankly, is a very positive one. Read the rest of this transcript for free on seekingalpha.com