Terex (TEX) Down 5.4% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Terex Corporation TEX. Shares have lost about 5.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Terex Earnings Miss While Revenues Beat in Q3

Terex reported adjusted earnings of $0.19 per share in third-quarter 2016, falling short of the Zacks Consensus Estimate of $0.22. Earnings plunged 57% year over year from $0.44 in the prior-year quarter. While the AWP and MP segments performed in line with expectations, the Cranes segment performance was negatively impacted by more challenging markets than anticipated as well as operational factors.

Including onetime items, the company reported a profit of $0.31 per share in the quarter compared to $0.28 in the prior-year quarter.

Operational Update

Revenues in the quarter declined 16% year over year to $1,056 million from $1,255 million in the prior-year quarter. However, revenues beat the Zacks Consensus Estimate of $1,046 million.

Cost of goods sold decreased 13% to $873 million from $1,003 million in the year-earlier quarter. Gross profit plunged roughly 27% year over year to $184 million. Gross margin contracted 270 basis points to 17.4%. Selling, general and administrative expenses dipped 10% year over year to $144.3 million. Terex reported an operating profit of $39.6 million, down around 57% from $92 million in the year-ago quarter.

Segment Performance

The Aerial Work Platforms (AWP) segment posted revenues of $484.4 million in the quarter, down 17% from $580.9 million in the prior-year quarter. Operating income plummeted 57% to $39.6 million from $92 million in the prior-year quarter.

Revenues from the Crane segment fell 25% to $283 million from $379 million in the year-ago quarter. The segment’s operating loss of $12.1 million was in stark contrast to an operating profit of $12.1 million in the prior-year quarter.

The Material Processing (MP) segment’s revenues were $228 million, down 4% year over year. The segment reported an operating income of $19.5 million, up 11% year over year.

Financial Position

At the end of third-quarter 2016, Terex had cash and cash equivalents of $248.8 million compared with $371.2 million at 2015 end. The company generated $90.8 million of cash in operating activities for the nine-month period ending Sep 30, 2016 compared with cash usage of $56.6 million in the comparable year-ago period. Long-term debt was $1.65 billion as of Sep 30, 2016, compared with $1.73 billion as of Dec 31, 2015.

2016 Guidance

Terex lowered its earnings per share from continuing operations guidance to between $0.70 and $0.80 in 2016, excluding restructuring and other unusual items. Further, the company lowered its net sales guidance to $4.2–$4.4 billion for full-year 2016.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two downward revisions for the current quarter. In the past month, the consensus estimate also shifted downward by 124% due to these changes.

Terex Corporation Price and Consensus

 

Terex Corporation Price and Consensus | Terex Corporation Quote

VGM Scores

At this time, Terex's stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'B'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting a inline return from the stock in the next few months.

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