Terex Corporation (NYSE: TEX) — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Comparisons below are to FY 2020 unless noted; the filing does not provide a full standalone Q4 results summary in the supplied text.
Business context
Terex designs, manufactures and supports aerial work platforms and materials processing machinery, reported in its AWP and MP segments. Its products serve construction, infrastructure, utilities, aggregates, recycling and related markets. North America represented approximately 55% of 2021 sales.
Financial and operating performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $3,886.8 million | $3,076.4 million |
| Gross profit / margin | $757.4 million / 19.5% | $539.3 million / 17.5% |
| SG&A / percent of sales | $429.4 million / 11.0% | $470.9 million / 15.3% |
| Operating income / margin | $328.0 million / 8.4% | $68.4 million / 2.2% |
| Net income (loss) | $220.9 million | $(10.6) million |
| Diluted EPS | $3.12 | $(0.15) |
| Cash provided by operations | $293.4 million | $225.4 million |
| Free cash flow, company-defined | $125.0 million | Not stated in the supplied text |
Sales increased 26.3%; management attributed growth to stronger demand across both segments, with approximately $95 million of favorable foreign-exchange impact. Gross profit and operating income rose on higher volume, improved manufacturing efficiency, pricing and cost discipline, partly offset by materials, labor and freight inflation.
- AWP: Sales were $2,178.8 million, up 22.2%; operating income was $152.1 million, a 7.0% margin, versus $0.5 million in 2020. Backlog reached $1,955.8 million, up approximately 137%.
- MP: Sales were $1,691.8 million, up 34.6%; operating income was $240.9 million, a 14.2% margin. Backlog was $1,034.0 million, up approximately 98%.
Year-end cash was $266.9 million and total available liquidity was approximately $867 million, including $600 million of undrawn revolving credit. Net debt reported in the debt note was $670.6 million; the company repaid approximately $503 million of debt during 2021. No revolver borrowings were outstanding, and no significant debt maturities were expected before 2024. Working capital was $758.1 million, or 19.1% of trailing-three-month annualized sales. Capital expenditures were $59.7 million.
Material changes and unusual items
- Backlog more than doubled year over year to $2,989.8 million, as orders outpaced billings amid stronger demand.
- The company issued $600 million of 5% senior notes due 2029 and redeemed its $600 million of 5⅝% notes due 2025. It also prepaid approximately $500 million of term loans. Debt refinancing and prepayments contributed to a $29.4 million early-extinguishment loss.
- 2021 results included a $6.4 million gain on the sale of a South American utility hot-lines tools business and a $3.4 million after-tax gain on dispositions of discontinued operations. The disposed mobile-cranes business had been classified as discontinued operations following earlier strategic exits.
- Terex acquired MDS, a trommels and materials-processing equipment business, for approximately $19 million and acquired MP manufacturing assets in China for approximately $17 million.
Outlook, management commentary and risks
Management projected FY 2022 net sales of $4.1–$4.3 billion and adjusted EPS of $3.55–$4.05. The EPS outlook excludes unusual items and was not reconciled to GAAP because the timing and impact of such items could not be reasonably predicted. Segment outlooks were AWP sales of $2.3–$2.4 billion with a 7.8%–8.5% operating margin, and MP sales of $1.8–$1.9 billion with a 14.0%–14.5% operating margin.
Management expected supply constraints to challenge early 2022 production, with supply-chain headwinds easing in the second half and pricing realization improving through the year. It expected higher input costs to peak in Q1 and earnings to be higher in the second half. Planned 2022 capital expenditures were approximately $90 million, including investment in the Mexico manufacturing facility.
- Key risks include ongoing parts and semiconductor shortages, logistics disruption, inflation in materials, freight and labor, and the ability to recover costs through pricing.
- Results are exposed to COVID-19 developments, cyclical construction and industrial markets, customer financing availability, foreign exchange, tariffs and government infrastructure spending.
- Terex disclosed a contested Brazilian ICMS tax claim of approximately BRL 104 million, or $19 million, including penalties and interest. The company disputes the claim; final resolution is uncertain.
- Credit guarantees to customer financing institutions had maximum exposure of $143.5 million, against an allowance of $6.3 million. The company also disclosed $107.8 million of outstanding letters of credit.
- Management stated it was in compliance with debt covenants and believed liquidity was adequate for at least the next 12 months. The filing also describes litigation, product-liability exposure, environmental and cybersecurity risks, and continuing obligations under prior SEC orders.
The company reported effective disclosure controls and internal control over financial reporting as of year-end; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the substantial backlog converts to sales on schedule, particularly given supply constraints and the risk that not all orders are filled within a year.
- Whether pricing and manufacturing efficiencies offset input-cost inflation sufficiently to meet the 2022 sales, margin and adjusted-EPS outlook.
- Cash conversion and working-capital needs as inventories and receivables rise; also review the company’s use of receivables factoring, including $527 million of trade receivables sold during 2021.
- Debt reduction, refinancing terms and covenant headroom, along with the effect of variable rates and future interest costs.
- Developments in the Brazilian tax dispute, customer credit guarantees and other contingencies, and any material change in the company’s risk assessments.