20.07.2011

Terex Cranes sales flat

Terex Cranes has reported first half revenues almost exactly the same as those of last year, while the business slipped into the red.

Total crane revenues were $862.4 million – just $400,000 lower than a year ago, however last year’s modest operating profit of $13.9 million turned into a loss of $56.5 million this year.

The second quarter showed an improving trend though in terms of revenues- up 3.3 percent to $464.1 million. Rough terrain cranes, truck cranes and mobile port equipment demonstrated the most significant contribution to sales in the quarter, especially in North America, where Rough Terrain and truck cranes have shown particular strength. Tower cranes and some of the large crawler cranes have also saw a positive pick up while All-terrain cranes rebounded a little from a slow start to the year, but are still well below the levels of a year ago.

Operating profits were a different story though with the business posting a loss of $34 million compared to a loss in the same quarter last year of $17 million. The higher losses are attributed mostly to pre-tax restructuring and other charges of around $36 million related to cost reduction and manufacturing footprint rationalisation. Partially offset by decreased warranty expense and a favourable adjustment related to a prior acquisition of approximately $3 million.

The crane backlog as of the end of June was $918 million 32.8 percent higher than it was a year ago, but 8.7 percent lower than it was at the end of the second quarter. However this is after $219 million worth of orders were removed from the backlog in the second quarter, following the removal of $31 million of orders from a customer in bankruptcy proceedings, $73 million of withdrawn orders for a “newly developed All Terrain crane, that is not yet ready for introduction” - assumed to be the long delayed 1,000 tonne AC1000-first announced in 2006 and iniitally due for delivery in 2008, while the balance came from smaller order cancellations.

Terex as a whole saw revenues grow by 36 percent to $2.74 billion, while pre-tax profits were $26.7 million compared to a loss in the first half of last year of $149.5 million.

Chief executive Ron DeFeo said: “We have made progress during the first six months of 2011, but there is still significant work in front of us. We had strong performance in terms of order and sales activity in the second quarter but supplier constraints on component deliveries and other operational challenges caused operating margins to be below expectations. Our sales grew by 38 percent over the prior year period and 18 percent over the first quarter of 2011."

"Our Cranes segment continued to adjust to the softer European market demand and has taken and continues to initiate substantial cost reductions.”

“We anticipate that Cranes restructuring actions will improve that segment’s performance, particularly in 2012. In total, we expect approximately $70 million in annualised benefit from the actions that have and will be taken in that segment. These changes reflect headcount and facility adjustments, and, while painful, we anticipate a stronger and better franchise in the future. Terex Port Equipment made substantial progress in the quarter."

"While this business was not yet profitable, losses excluding restructuring and related costs were cut in half from the first quarter. As a result of the improving demand environment and the restructuring actions that have been and will be taken, we expect this business to exit 2011 at a break even rate or better.”

“Our suppliers have struggled in some areas to keep up with our requirements. This was particularly an issue for our Construction segment, but deliveries from component suppliers had improved by the end of the quarter.”

"The Demag Cranes AG purchase offer has met our expectations and progressed well. At the end of the extended offer period, preliminary results indicate that approximately 82 percent of the outstanding shares were tendered for purchase or are already owned by Terex.

"Demag Cranes AG will add a new business segment to Terex with world-class products in industrial cranes and hoists, port technology and service. Demag Cranes AG’s business is highly complementary to the existing Terex business, and the combination has compelling industrial logic. The addition of Demag Cranes AG is expected to add approximately $1.7 billion annually in net sales with a strong footprint in Europe and emerging markets. The completion of the offer still remains subject to merger control clearance by the European Commission. We expect that this transaction will close in the third quarter of 2011."

“We anticipate that our full year performance will be near the top of our range for net sales. Our prior expectation for full year 2011 was for net sales to be between $5.2 billion and $5.5 billion, resulting in EPS, excluding restructuring and other items, between $0.60 and $0.75. Current expectations are for full year 2011 net sales to be between $5.4 billion and $5.6 billion.

Vertikal Comment

While the headline numbers look a little gloomy in places they mask a continuing and reasonably solid underlying recovery in the regular crane business. The losses are largely due to one-off restricting actions, some of which likely to improve the company’s base over the long term. The acquisition of Demag should also help boost the fortunes of its existing marine Fantuzzi business, if not at least this part of the cranes operations is likely to be moved away into a new marine and industrial segment?

The modest fall back in order intake from the first quarter appears to have been entirely due to a small number of existing order cancellations, with the underlying order intake actually growing significantly during the period. My guess is that the non-port related crane business didn’t do too badly over the period and that it will be positive for the year as whole, subject of course to no new financial crisis.