Terex Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Terex manufactures materials-processing machinery and aerial work platforms, reported in Materials Processing (MP) and Aerial Work Platforms (AWP). Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $1,077.1 million | $1,038.7 million | $2,079.6 million | $1,902.9 million |
| Gross profit / margin | $212.9 million / 19.8% | $231.6 million / 22.3% | $398.7 million / 19.2% | $407.0 million / 21.4% |
| Operating income / margin | $103.9 million / 9.6% | $122.5 million / 11.8% | $178.4 million / 8.6% | $184.0 million / 9.7% |
| Net income | $74.1 million | $73.9 million | $126.0 million | $114.0 million |
| Diluted EPS | $1.07 | $1.04 | $1.80 | $1.61 |
Sales increased 3.7% in Q2 and 9.3% year to date, primarily from pricing and demand; currency translation reduced sales by approximately $52 million and $83 million, respectively. Higher material, labor, freight and manufacturing costs, along with unfavorable currency effects, more than offset pricing and volume benefits, compressing margins. Q2 operating income fell 15.2% year over year. The 2021 comparisons included significant debt-extinguishment losses: $25.6 million in Q2 and $27.7 million for the first half.
- Segment trends: Q2 MP sales rose 9.1% to $480.7 million and operating income increased 10.3% to $79.5 million (16.5% margin). AWP sales were nearly flat at $597.7 million, while operating income fell 29.1% to $46.2 million (7.7% margin). MP and AWP backlogs were $1.1 billion and $2.3 billion, up 32% and 62%, respectively, year over year.
- Cash flow: First-half operating cash flow was $19.3 million versus $269.2 million in 2021. Capital expenditures were $47.0 million; reported first-half free cash flow was negative $27.6 million. Q2 operating cash flow was $71.0 million and free cash flow was $44.2 million, including a $38 million IRS-approved refund.
- Liquidity and debt: Cash was $253.3 million, with $425 million of undrawn revolver capacity and reported total liquidity of $678 million. Debt totaled $828.2 million, including $175 million drawn on the revolver; net debt was approximately $574.9 million. The company reported covenant compliance and no significant debt maturities until 2024. The revolver has a 2026 maturity, subject to a spring-forward provision tied to the term loan.
- Working capital and capital allocation: Inventory increased to $963.2 million from $813.5 million at year-end, including $63 million of substantially completed equipment awaiting final components. Terex sold approximately $292 million of receivables without material recourse during the first half. It repurchased approximately $79.5 million of shares under its program and paid $18.0 million of dividends.
Outlook, commentary and risks
Terex raised its 2022 outlook to adjusted EPS of $3.80–$4.20 and net sales of $4.1–$4.3 billion. The EPS outlook excludes potential acquisitions, divestitures, restructuring and other unusual items and was not reconciled to GAAP EPS. Management expected full-year price-cost neutrality, while warning that supply-chain disruption, inflation, geopolitical uncertainty, foreign exchange volatility and restrictive China COVID-19 policies could cause results to vary.
Management described strong demand in most markets but ongoing production constraints and cost pressures. It expected material shortages and production delays to continue through the remainder of 2022. China demand was weaker, particularly for AWP. The company cited currency weakness in the euro and pound as a meaningful headwind and estimated that a 10% currency move relative to rates embedded in first-half results would affect operating income by about $17 million.
Terex acquired Northern Ireland fabricator Steelweld for approximately $6 million in April 2022. After quarter-end, it agreed to acquire Canadian volumetric-mixer businesses for approximately $39 million. A Brazilian tax dispute concerns approximately BRL 105 million, or $20 million, of assessed ICMS tax, penalties and interest; Terex disputes the claim. Customer credit guarantees had maximum exposure of $124.6 million and an allowance of $6.8 million at June 30. Management said recorded reserves were adequate and that other legal matters were not expected to have a material adverse effect, while acknowledging adverse litigation outcomes could be significant.
The company also identified risks from supplier concentration and availability, tariffs and trade disputes, cyclical end markets, customer and supplier access to credit, foreign exchange, interest rates, litigation and its ability to generate cash and comply with debt covenants. It reported effective disclosure controls as of June 30, 2022 and no material change in internal control during the quarter.
Most important facts for investors to verify
- Whether pricing and cost actions can restore margins as inflation, freight costs and supply constraints persist.
- Whether the elevated inventory—especially equipment awaiting components—converts to shipments and cash, and how working capital affects future cash flow.
- Whether the raised full-year sales and adjusted EPS outlook remains achievable; confirm the treatment of excluded unusual items and foreign exchange assumptions.
- Available revolver capacity, debt covenant headroom and the term-loan maturity provisions, particularly as borrowings and interest rates change.
- Developments in the Brazilian ICMS litigation, customer guarantee losses, and the integration and financial contribution of Steelweld and the announced ProAll acquisition.