Terex Announces 2009 Results

Terex Corp., Westport, Conn., announced a net loss from continuing operations for the fourth quarter of 2009, deemed “one of the most challenging years ever” by Ron DeFeo, of $114.8 million, or $1.06 per share. That compares to a net loss of $452.3 million, or $4.78 per share, for the fourth quarter of 2008. Net sales were $1,058.0 million in the fourth quarter of 2009, a decrease of 36.1 percent from $1,656.1 million in the fourth quarter of 2008. Net sales decreased approximately 41 percent from the comparable prior-year period when adjusting for the translation effect of foreign currency exchange rate changes.

“We just completed one of the most challenging years ever for our industry and our company. We weathered the storm and have made many changes along the way,” commented DeFeo, Terex chairman and CEO. “And while we continue to face very low levels of demand in many of our end markets, the company is beginning to recover operationally, and our strategic transformation has started with the sale of our mining business to Bucyrus International.” DeFeo pointed out that the company had a net sales decline from continuing operations of 52 percent in 2009 compared to 2008. “When net sales declines this rapidly, the profitability falls even more quickly, as pricing actions, inventory valuations, bad debt, and restructuring costs all add up,” he explained. “This is why we chose to manage the company for cash in 2009, as well as quickly putting in place cost reduction programs to resize the organization's cost structure to the current demand environment. We are glad that we took this path, even though at times it was painful.”

Results exclude the mining and Load King trailer businesses, which are classified as Discontinued Operations in Terex’s financial statements. During the fourth quarter of 2009, the company incurred pre-tax charges of approximately $27 million associated with restructuring programs and a continued reduction in production levels. Goodwill impairment charges recorded during the fourth quarter of 2008 reduced net income in that quarter by $4.84 per share. All per-share amounts are on a fully diluted basis, and all results are for continuing operations only.

For the full year 2009, Terex reported a net loss of $450.7 million, or $4.39 per share, compared to a net loss of $74.0 million, or $0.74 per share, for the full year 2008. Charges primarily related to adjustment of the company’s production levels resulted in after-tax charges of approximately $100.6 million and $28.8 million for the full year 2009 and 2008, respectively, reducing earnings per share by $0.98 and $0.29 in those years. Goodwill impairment charges recorded during 2008 reduced net income in that year by $4.60 per share. Net sales were $4.04 billion in 2009, a decrease of 51.8 percent from $8.39 billion in 2008. The translation effect of foreign currency exchange rate changes accounted for approximately 3 percent of the decrease in net sales and acquisitions contributed approximately 2 percent of the increase in net sales.

“However, we are proud of our accomplishments during the year,” continued Mr. DeFeo. “First, we secured our balance sheet, renegotiated covenants with our bank lending group and increased our liquidity to approximately $1.5 billion through our sales of equity and debt at mid-year. Secondly, our strategic transformation, which we started with the acquisition of our port equipment business at a fair purchase price and with the financial support of the existing creditors of this business, continues with the sale of our mining business to Bucyrus International for $1.3 billion. Finally, we realized approximately $538 million in cash from inventory reductions from our continuing operations.”

The 2010 outlook remains challenging for Terex, said DeFeo, but the company believes its performance will improve during the year. “We have begun the process of changing our focus from cash management to growth,” he said. “We see relative stability in our end markets and believe we need to capture market share in order to grow. To do this, we will introduce several new products across a range of our businesses and complete new factories in India and China that will support our business later in 2010 and beyond. We expect to continue to incur operating losses in the first half of 2010, and expect to return to operational profitability in the second half of the year. Additionally, we anticipate that our income from operations in the fourth quarter of 2010 will more than offset our interest expense for that period.”

As the 2010 year develops, Terex will make choices on the appropriate use of liquidity, allocating resources between internal investments, acquisitions and debt payment depending on the relative value and timing of the options being considered, continued DeFeo. “Given the challenging environment for our industry and our company, we believe that we are in a good position to capitalize on future growth and profit opportunities.”

The fourth quarter of 2009 ended with the company trending back into equilibrium between production and end market demand, commented Tom Riordan, Terex president and chief operating officer. “For the 18 month period that began in mid 2008, net sales were on an unpredictable path downward, with cost reductions, pricing adjustments and other actions underway to rebalance operations. Until mid 2008, the company had grown at an astounding average of over 25 percent per year for nearly 12 years, with a substantial amount of this growth being organic. And in the last fiscal year we saw our net sales drop approximately 52 percent,” said Riordan.

During 2009 Terex produced less than end market demand, as evidenced by significant inventory reduction, which contributed to increased under-absorption in our factories, said Riordan. Producing to end-market demand in 2010 will contribute almost $200 million to operating profit improvement. We do not expect our businesses to show signs of growth until later in the year. Terex expects that materials processing will begin to see improvement first, and compact construction will follow, starting in North America. Aerial work platforms will likely remain at current levels for most of the year and pick up in early 2011, he said. Cranes should start to experience moderate growth in the back half of the year, including the port equipment business. Terex also expects meaningful cost reduction contributions from supply chain initiatives.

“We recognize that the sale of the mining business makes our short-term hurdles even higher. That said, we believe the changes we made in 2009 position the company well for the future. Our operational attention has shifted from a focus primarily on cash generation in 2009 to growth and profit generation in 2010, as our markets have stabilized, albeit at low levels,” concluded Riordan.