James, your expertise requested please. I read that they reported 65 cents but then I read they reported 18 cents..one PR says they beat by 10 cents, another said they missed EPS..can you please clarify what the answer is?
(1) This is a loss for buying back debt. Say you bought a 10 year U.S. Treasury at a yield of 4% and coupon of 4% for $1000, paying $40 of interest a year. Then treasury yields drop to 1% after 1 year. So the PV of the bond or its fair value jumps to $1257. Now lets say the U.S. Treasury bought back the bond for $1256 and issues a new $1000 bond for 1% for 10 years.
So the U.S. treasury loses $256 in accounting losses in year 1 but it will save $30 in interest payments a year or $300 (4% - 1%) X 9. So the present value of those savings are $257.
So there is an accounting loss but the company saves money therefore this NON GAAP adjustments makes sense and is legit.
(2) Construction restructuring. Sales dropped from last quarter and margins went up. So some improvement. They cut another factory so the loss seems legit.
(3) Cranes - They didn't explain the charge at all so the losses here seem illegit
(4) MHPS restructuring - Last quarter it lost $29 M this quarter adjusted only 11M it seems suspicious given that revenue didn't increase that much from Q1. So at least $15M of those losses don't look one time
(5) NCI- They bought out Demag stockholders at a discount meaning a gain. They don't count this gain since it won't be reoccurring.In total they say 47 cents I would say it looks closer to 30 cents of one time charges.
It seems their organic earnings power in the quarter was closer to 45 cents.
Excluding the disastrous MHPS which is why I sold their organic earnings power was closer to 68 cents. Then they had intangible asset amortization in the quarter relating to demag of 12 cents.
So what I was worried about is coming to fruiting Terex is a great company which got carried away with Demag. It was really hard to see at first if Demag would be good or bad. But in Q4 2012 it really worried me. I would wake up from my sleep tossing and turning. Then in Q1 it confirmed to me Demag is a piece of garbage.
Its pretty hard to recover any value from that investment. They bought it for $1.5B (Now that they own 100%) and they have already lost like 100M on it. So its a disaster.