Shares of Terex Corporation TEX have lost 5.7% over the past year, as against the industry’s growth of 10.9%. This downside resulted from overall slowdown in industrial equipment demand, muted sales volume and unfavorable foreign-currency translation impact.
Factors Plaguing International Flavors
The Terex stock dipped 3% following its third-quarter 2019 (ended Sep 30, 2019) earnings release. The company delivered adjusted net earnings of 82 cents per share, reflecting a year-over-year decline of 24%. Also, the bottom-line figure lagged the Zacks Consensus Estimate of 83 cents.
Considering the overall slowdown in industrial equipment demand and impact of unfavorable foreign-exchange rates, Terex lowered its earnings per share guidance to $3.00-$3.20 on net sales of $4.4 billion for 2019 from the prior projection of $3.40-$3.80 on net sales volume of $4.6 billion. For the current year, Terex anticipates sales to be down 10% year over year.
Sluggish demand in the major markets has been eroding Terex’s Aerial Work Platform (AWP) segment, straining sales volume. Terex is, thus, cutting down production and managing inventory levels to align with demand, which will shrink margins. The company anticipates the segment’s sales to be down 6-7% in 2019. Further, lower volume, unfavorable foreign-exchange rates and product mix will dampen margins for the year.
Global market uncertainty has been weighing on the Material Processing (MP) segment. There has been a dip in net bookings for the segment lately, indicating weaker demand in their global markets.
Will the Stock Rebound?
Despite the aforementioned headwinds, Terex’s segments are poised to grow on several initiatives. Its AWP segment will gain from strategic source and savings, operational execution, strengthening global footprint and innovative new products over the long haul. The segment continues to improve sales in the Asia-Pacific region and China, fueled by increasing product adoption. The utilities business will gain from the manufacturing facility being built in Watertown, SD, which will boost capacity and significantly improve productivity.
In the MP segment, the company continues to invest in India to capitalize on the country and the surrounding markets’ prospects. Its solid product pipeline and consistent strong execution also positions the segment well for growth.
Terex has made considerable progress in its strategic transformation plan that has three principal elements — Focus, Simplify and Execute to Win. While the Focus element calls for increased investments on high-performing businesses, the Simplify aspect focuses on complexity reduction and cost management. The Execute to Win is focused on three key management processes — talent development, strategy development and deployment, and operational excellence.
In line with this, Terex sold the Demag mobile crane business and exited the mobile crane product lines manufactured at Oklahoma City facility, in a bid to improve operating performance.
The company continues to follow a disciplined capital-allocation strategy while investing in future growth and creating additional value for shareholders. Terex is making strategic investments in high-performing businesses. It anticipates capital expenditure of $100 million for the current year.
The company currently carries a Zacks Rank #3 (Hold) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities.
The company outpaced the Zacks Consensus Estimate in two of the trailing four quarters, the average positive beat being 13.15%. It has an estimated long-term earnings growth rate of 6.5%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are DXP Enterprises, Inc. DXPE, Cintas Corporation CTAS and Graphic Packaging Holding Company GPK. While DXP Enterprises sports a Zacks Rank #1, Cintas and Graphic Packaging carry a Zacks Rank of 2, at present. You can see the complete list of today's Zacks #1 Rank stocks here.
DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 23.1%.
Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 57.8% over the past year.
Graphic Packaging has a projected earnings growth rate of 13.1% for 2020. The company’s shares have gained 40.5% in the past year.
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