Terex Corporation (NYSE: TEX) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Terex manufactures materials-processing machinery and aerial work platforms, reported through Materials Processing (MP) and Aerial Work Platforms (AWP).
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,002.5 million | $864.2 million | +16.0% |
| Gross profit / margin | $185.8 million / 18.5% | $175.4 million / 20.3% | Margin down 1.8 percentage points |
| Operating income / margin | $74.5 million / 7.4% | $61.5 million / 7.1% | +21.1% |
| Net income | $51.9 million | $40.1 million | +29.4% |
| Diluted EPS | $0.73 | $0.57 | +28.1% |
| Operating cash flow | $(51.7) million | $138.1 million | Down $189.8 million |
| Free cash flow | $(71.8) million | Not stated in the provided filing text | — |
Sales growth reflected stronger demand, while foreign exchange reduced reported sales by approximately $32 million. Gross profit rose with volume, but inflation in materials, labor and freight, supply disruptions and currency effects more than offset pricing gains. SG&A declined 2.3% to $111.3 million, or 11.1% of sales. The effective tax rate was 18.5%, versus 16.2%.
Segments
- MP: Sales of $452.7 million, up 19.7%; operating income of $64.5 million and a 14.2% margin, versus 13.0%. Backlog was $1.2 billion, up 66% year over year.
- AWP: Sales of $551.5 million, up 15.7%; operating income of $32.5 million and a 5.9% margin, versus 5.6%. Backlog was $2.3 billion, up 77% year over year. Demand was weaker in China.
Liquidity, debt and capital
At March 31, 2022, cash was $218.4 million, down from $266.9 million at year-end. Total reported debt was approximately $740.3 million, including $600 million of 5% senior notes, $77.9 million of term loans and $65.0 million drawn on the revolver. Terex reported $535 million of undrawn revolver availability and approximately $753 million of total liquidity. The company said it had no significant debt maturities until 2024 and was compliant with credit-agreement covenants.
Operating cash use reflected working-capital needs and incentive compensation payments; inventory increased to $921.3 million from $813.5 million at year-end. Investing cash use was $23.2 million, including $20.1 million of capital expenditures. Financing provided $28.0 million, including $65.0 million of new borrowing, partly offset by share repurchases and dividends. Terex sold approximately $141 million of receivables without material recourse during the quarter. The quarterly dividend was $0.13 per share, and the filing reports approximately $20 million of Q1 share repurchases.
Outlook, commentary and risks
Terex maintained 2022 guidance of $4.1 billion to $4.3 billion in net sales and adjusted EPS of $3.55 to $4.05, excluding potential unusual items. Management cautioned that results could change positively or negatively amid supply constraints, inflation, geopolitical uncertainty and restrictive COVID-19 policies in China. It expected supply shortages and production delays to continue through the remainder of 2022, and anticipated price-cost pressure in the first half, with price-cost neutrality for the full year.
Management cited strong global demand and execution, but said supply-chain disruptions and cost inflation intensified late in the quarter. Price increases had only partially offset higher costs. Other key risks include foreign-exchange movements, tariffs and trade disputes, customer and supplier financial health, cyclical markets, and the ability to generate cash and service debt.
Terex disclosed a Brazilian ICMS tax dispute involving an assessment of approximately BRL 104 million (about $22 million), including penalties and interest; the company disputes the claim, but cannot assure the outcome. Credit guarantees had maximum exposure of $140.0 million, with a $6.6 million allowance. The filing also cites litigation and contingencies, including current-period litigation provisions and restructuring charges within Corporate and Other; management said it did not expect contingencies, individually or in aggregate, to have a material adverse effect.
Most important facts for investors to verify
- Whether backlog converts to shipments and revenue given ongoing component shortages, logistics constraints and production delays.
- Whether pricing can offset materials, labor and freight inflation sufficiently to meet full-year margin and EPS guidance.
- Working-capital and cash-flow trends, particularly inventory growth, receivables sales and the use of revolver borrowing.
- Progress and potential financial impact of the Brazilian ICMS proceedings and customer credit guarantees.
- The basis for reported repurchase amounts: the filing gives approximately $20 million of Q1 repurchases, while its equity note reports $19.6 million under the authorization and its cash-flow statement reports $17.7 million of share repurchases.