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Why Is Terex (TEX) Down 7% Since its Last Earnings Report?

Zacks Equity Research
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A month has gone by since the last earnings report for Terex Corporation TEX. Shares have lost about 7% in that time frame.

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

Terex's Q4 Earnings & Revenues Top Estimates, Up Y/Y

Terex Corporation’s fourth-quarter 2017 adjusted earnings surged a whopping 230% year over year to 33 cents per share. Earnings also beat the Zacks Consensus Estimate of 25 cents per share by a wide margin of 32%. Increased operating margins, bookings and backlog in every segment led to the overall improved performance in the quarter.

Including one-time items, Terex posted a loss of 37 cents per share in the quarter, narrower than the loss of $2.52 reported in the year-ago quarter.

Operational Update

Revenues in the reported quarter improved 9% year over year to $1,063.6 million from $974.7 million recorded in the prior-year quarter. Also, the figure beat the Zacks Consensus Estimate of $999.2 million.

Cost of goods sold edged down 1.2% to $860 million from $870 million in the prior-year quarter. Gross profit surged around 95% year over year to $204 million. Gross margin expanded 850 basis points (bps) to 19.2%.

Selling, general and administrative expenses slumped 56% year over year to $164 million. Terex reported an operating income of $39.8 million against a loss of $272 million reported in the year-ago quarter.

Segment Performance

The Aerial Work Platforms (AWP) segment posted revenues of $449 million in the quarter, up 18.6% from $379 million in the prior-year quarter. Operating income improved 66.5% to $30.3 million from $18.2 million in the year-ago quarter.

Revenues from the Crane segment dipped 0.8% to $324 million from $327 million recorded in the year-earlier quarter. The segment reported an operating income of merely $1.8 million against a loss of $280.2 million reported in the comparable quarter last year.

The Material Processing (MP) segment’s revenues came in at $283 million, up 19.8% year over year. The segment reported an operating income of $35.5 million, up 58% year over year.

2017 Performance

Terex reported adjusted earnings per share of $1.35 in 2017, up a massive 53% year over year. Earnings beat the Zacks Consensus Estimate of $1.29. On a reported basis, the company posted earnings of 63 cents per share against a loss of $1.79 recorded in 2016.

Revenues dropped 1.8% year over year to $4,363 million from $4,443 million recorded in 2016. Revenues also beat the Zacks Consensus Estimate of $4,299 million.

Financial Position

Terex had cash and cash equivalents of $626.5 million at the end of fourth-quarter 2017 compared with $428.5 million reported at the end of 2016. Cash flow from operations came in at $153 million in 2017 compared to $377 million recorded last year. Long-term debt was $980 million as of Dec 31, 2017, compared with $1.56 billion as of Dec 31, 2016.

2018 Guidance

Terex expects its full-year 2018 adjusted EPS in the range of $2.35-$2.65, reflecting remarkable year-over-year growth of 85%. The company also anticipates that net sales will be up around 10% year over year in 2018. Notably, Terex expects revenue growth and operating margin improvement in every business segment in 2018. It will continue to implement the Simplify and Execute to Win strategy. Moreover, focus on disciplined capital allocation strategy and backlog strength will drive the company’s growth.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 51.7% due to these changes.

Terex Corporation Price and Consensus

 

Terex Corporation Price and Consensus | Terex Corporation Quote

VGM Scores

At this time, TEX has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, TEX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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