Terex Corporation (NYSE: TEX) — 2022 Form 10-K
Business context and reporting period. Terex manufactures materials-processing machinery and aerial work platforms, reported in Materials Processing (MP) and Aerial Work Platforms (AWP). This filing covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter report. Fourth-quarter net sales were $1.218 billion.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $4.418 billion | $3.887 billion |
| Gross profit / margin | $871.2 million / 19.7% | $757.4 million / 19.5% |
| Operating income / margin | $420.0 million / 9.5% | $328.0 million / 8.4% |
| Net income | $300.0 million | $220.9 million |
| Diluted EPS | $4.32 | $3.12 |
| Cash from operations | $261.2 million | $293.4 million |
| Free cash flow | $151.8 million | Not stated here |
MP sales rose 14.8% to $1.942 billion and operating margin increased to 15.3% from 14.2%. AWP sales increased 14.0% to $2.484 billion and operating margin rose to 7.9% from 7.0%. Foreign-exchange movements reduced reported consolidated sales by approximately $244 million and affected operating results.
At year-end, cash was $304.1 million, total debt was $775.5 million, and available liquidity was approximately $727 million, including $423 million of undrawn revolving credit availability. Inventory was $988.4 million, up from $813.5 million. The company reported $177 million outstanding on its revolver and no significant debt maturities before 2026; it was in compliance with debt covenants.
Changes, outlook and management commentary
- Sales increased 13.7%; operating income rose 28.0%. Management attributed improvement to demand, pricing, volume and mix, partly offset by inflation, freight, manufacturing inefficiencies and currency effects. Management said full-year price and cost impacts were neutral.
- Year-end backlog rose 22% to $4.071 billion: MP increased 12% to $1.174 billion and AWP increased 27% to $2.897 billion. Backlog includes orders expected to be filled beyond one year and is not a guarantee of future sales.
- For 2023, management forecast net sales of $4.6–$4.8 billion and adjusted EPS of $4.60–$5.00. MP guidance was $2.0–$2.1 billion in sales and approximately 15.5% operating margin; AWP guidance was $2.6–$2.7 billion and approximately 9.0% margin. EPS guidance excludes unusual items and is non-GAAP.
- Management expected ongoing supply constraints and material shortages into 2023, alongside inflation, labor and freight pressures, foreign-exchange volatility and geopolitical uncertainty. Production-line moves and a new Monterrey facility were expected to affect 2023 manufacturing efficiency. Planned 2023 capital expenditures were approximately $135 million.
- Cash from operations declined from 2021, partly because 2021 included proceeds from a finance-receivables sale; 2022 cash generation also absorbed higher inventory. Terex sold approximately $665 million of receivables during 2022 under factoring arrangements.
Risks, contingencies and unusual items
- Key risks include supply-chain disruption and cost volatility; cyclical end markets and sensitivity to interest rates and government infrastructure spending; pricing competition; customer financing and credit risk; foreign-exchange exposure; and labor availability, cybersecurity, tariffs and regulatory compliance.
- A $17.7 million tax benefit resulted from releasing a valuation allowance on a German interest-expense deferred tax asset. Recoverability of certain deferred tax assets was identified as a critical audit matter; net deferred tax assets were $127.9 million.
- Terex disclosed a Brazilian ICMS tax dispute involving an assessment of approximately BRL 108 million (about $20 million), including penalties and interest. The company contests the claim; the outcome is uncertain.
- Customer financing guarantees had maximum exposure of $121.4 million, with a $6.3 million allowance. The company also had $118.4 million in outstanding letters of credit. Management stated that other proceedings and contingencies were not expected to have a material adverse effect, while noting litigation outcomes cannot be predicted.
- Terex completed acquisitions including ProAll, a Canadian volumetric-mixer manufacturer, for approximately $40 million including estimated contingent consideration, and Steelweld for approximately $6 million. The company returned approximately $132 million to shareholders in 2022 through dividends and share repurchases.
Investor verification priorities
- Compare the 2023 sales, margin and adjusted-EPS outlook with subsequent results, including the effect of production moves and the Monterrey facility.
- Track inventory, working capital, operating cash flow and reliance on receivables factoring as supply constraints ease or persist.
- Review debt, revolver usage, interest costs, covenant headroom and the company’s progress toward its stated capital-structure objectives.
- Assess backlog conversion, cancellations and delivery timing; backlog is not assured revenue.
- Monitor the Brazilian tax proceeding, customer guarantee exposure and the assumptions supporting deferred tax assets.