Terex Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Amounts are in U.S. dollars. Terex manufactures materials processing machinery and aerial work platforms, reported in Materials Processing (MP) and Aerial Work Platforms (AWP).
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Net sales | $1,292.5 million | $1,235.7 million | Up 4.6% |
| Gross profit / margin | $297.3 million / 23.0% | $278.7 million / 22.6% | Margin up 40 basis points |
| Operating income / margin | $158.3 million / 12.2% | $147.7 million / 12.0% | Income up 7.2%; margin up 20 basis points |
| Net income | $108.5 million | $112.6 million | Down; prior-year results included a $2.7 million after-tax discontinued-operations gain |
| Diluted EPS | $1.60 | $1.64 | Continuing-operations diluted EPS was $1.60 in both periods |
| Operating cash flow / free cash flow | $(33.9) million / $(68.9) million | $9.1 million operating cash flow | Higher working capital use; free cash flow comparison not provided |
Higher volume, improved manufacturing throughput and price-cost discipline supported consolidated gross profit and operating income. SG&A rose 6.1% to $139.0 million, mainly due to compensation and technology costs. Other expense, net, increased to $10.4 million from $1.6 million, primarily reflecting mark-to-market losses on equity investments. The effective tax rate rose to 20.5% from 17.5%, principally due to geographic income mix and fewer favorable discrete items.
Segments and material changes
- MP: Sales fell 6.1% to $520.0 million; operating income fell to $72.1 million from $85.3 million, and operating margin declined to 13.9% from 15.4%. Softer European demand for material handling equipment and cranes was partly offset by North American aggregates growth.
- AWP: Sales grew 12.7% to $772.7 million; operating income rose to $107.3 million from $83.1 million, and operating margin improved to 13.9% from 12.1%. Demand, supply chain performance and manufacturing throughput improved.
- North America represented approximately 61% of sales; sales increased there and declined in other major regions. Consolidated Q1 bookings exceeded $1 billion but were lower year over year, reflecting more typical seasonal ordering and softer European demand.
- Backlog was $3.1 billion, including $2.4 billion for AWP and $712 million for MP; management said both remained above historical norms.
Cash, debt and liquidity
- Cash was $364.9 million at March 31, 2024, versus $370.7 million at year-end. Total liquidity was approximately $866 million, including $501 million of undrawn revolver availability. Liquidity declined about $105 million during the quarter.
- Total debt was $724.1 million, including $99.1 million drawn under the revolver; debt was $623.2 million at December 31, 2023. Net debt, calculated as debt less cash, was $359.2 million. The revolver’s weighted average rate was 6.67%; the weighted average rate on total debt was 4.50%.
- Terex reported no significant debt maturities until 2026 and compliance with all credit agreement covenants at quarter-end. It stated it expects adequate liquidity to meet operating and debt-service needs for at least the next 12 months.
- Capital expenditures were $35.0 million. Terex sold approximately $177 million of receivables without material recourse to enhance liquidity. It paid a $0.17-per-share dividend and repurchased 46,337 shares under its repurchase programs for $2.7 million.
- Receivables were $685.3 million and inventory was $1,217.6 million at quarter-end, up from $547.8 million and $1,186.0 million, respectively, at year-end. Management attributed the cash-flow decline mainly to higher working capital.
Outlook, risks and contingencies
- Terex expects 2024 net sales of $5.2–$5.4 billion and adjusted, non-GAAP EPS of $6.95–$7.35. The filing says it cannot reconcile this forward-looking EPS measure to GAAP without unreasonable effort because the timing and impact of unusual items cannot be predicted.
- Management cited healthy demand across many businesses and a strong backlog, but expects continued softness in Europe. Planned production-line moves in AWP may create short-term manufacturing inefficiencies.
- Intermittent material shortages, particularly electronic components, and production delays are expected to continue through the remainder of 2024, though disruptions have eased. Tariffs on certain Chinese-origin goods, inflation in purchased components, geopolitical uncertainty, foreign exchange movements and high interest rates remain risks.
- Credit guarantees had maximum exposure of $84.3 million and an allowance of $5.2 million at quarter-end. Terex cautioned that used-equipment values and customer credit conditions could affect recoveries.
- A Brazilian tax proceeding concerns approximately BRL 115 million, or $23 million, of disputed ICMS tax, penalties and interest. Terex continues to challenge the assessment; the filing gives no clear estimate of any ultimate payment.
- Terex said it had adequate reserves for its contingencies and did not believe the matters would materially adversely affect results, while noting that adverse litigation outcomes could be significant. It reported no material changes to previously disclosed risk factors and stated disclosure controls were effective.
Important facts for investors to verify
- Whether MP’s European softness and lower bookings persist, and how backlog converts to sales and cash.
- Whether working capital normalizes, given the quarter’s negative operating cash flow and reliance on receivables sales.
- Progress toward the 2024 sales and adjusted EPS outlook, including the impact of production-line moves, supply disruptions and tariffs.
- Debt, revolver usage and liquidity trends, along with continued covenant compliance.
- Developments in the Brazilian ICMS case and potential exposure beyond recorded reserves.