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Terex (TEX) Withdraws Guidance on Coronavirus Concerns

Zacks Equity Research

Terex Corporation TEX recently withdrew its guidance for 2020 on account of the coronavirus outbreak. The company also announced that it has suspended all share repurchases.

First detected in China, the coronavirus rapidly spread across the world and has been declared a pandemic. Per the World Health Organization’s report as of Mar 25, 2020, global affected coronavirus cases has shot up to 414,179, claiming 18,440 lives.

Terex stated that it is temporarily shutting down certain manufacturing facilities owing to the coronavirus outbreak, while adjusting production schedules at other facilities. The company is reducing supplier component purchases in line with lower production. It is aggressively managing all controllable costs.

Meanwhile, the company also remains committed to fulfilling customer requirements, including shipping products, delivering parts and servicing equipment. Contingency plans are being made for operations and the company is taking appropriate steps to reduce operating expenses. Precautions are also being taken to ensure health and safety of employees.

During its fourth-quarter 2019 conference call, Terex had issued earnings per share guidance of $1.85-$2.35 for fiscal 2020 on net sales of approximately $3.9 billion. The company had reported adjusted earnings per share of $3.25 in 2019. The sales guidance indicated decline of 6.3-7.3% in 2020 from the prior year. Terex had then cautioned that customers are likely to remain cautious with their capital expenditure decisions in 2020.

The company projected lower sales and earnings from the Aerial Work Platforms China facility in the first half of the year owing to the coronavirus outbreak. The company has now withdrawn this guidance citing that the uncertainty of the impact of the outbreak on its financial and operating results cannot be reasonably estimated at this time.

 

Over the past year, shares of Terex have plunged 58% compared with the industry’s decline of 22.5%.

The coronavirus outbreak has dealt a further blow to the manufacturing sector, which was already reeling under the protracted U.S.-China trade tensions and waning global demand. The U.S Purchasing Managers’ Index (PMI) released by the Institute for Supply Management had been below 50 (indicating contraction) for five consecutive months till December 2019. Even though the index climbed to 50.9 in January and came in at 50.1 in February, it seems unlikely that this recovery will stay, considering that manufacturing has been impacted by the coronavirus outbreak. Factory closures across the globe, impact of the restrictions posed by different governments, supply chain disruptions, demand for good, availability of employees and workers, logistic costs, among others will hit the sector.


There has been a spate of guidance withdrawals by the industry players lately. Earlier this week, agricultural and construction equipment manufacturer, Deere & Company DE withdrew its financial outlook for 2020 citing the COVID-19 outbreak. Another farm equipment maker, AGCO Corporation AGCO also followed suit and withdrew its financial guidance for the current year. Production has been suspended in many of the company’s European facilities, primarily due to supply-chain constrains and material shortage. Additional production disruptions in other regions are expected as well.

Pentair plc, which delivers a comprehensive range of smart, sustainable water solutions to homes, business and industry globally has also withdrawn first-quarter and full year 2020 guidance. This is because the company had to lower production in several key facilities as a result of "shelter in place" orders and suspensions of operations in several facilities due to the coronavirus crisis.

Zacks Rank & a Stock to Consider

Terex carries a Zacks Rank #3 (Hold).

A better-ranked stocks in the Industrial Products sector is Sharps Compliance Corp SMED, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year’s time, the company’s shares have gained 71%.

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