Terex Corporation (NYSE: TEX) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied filing text does not provide a complete standalone fourth-quarter income statement.
Business context
Terex designs, manufactures and supports materials processing machinery and aerial work platforms, reported in Materials Processing (MP) and Aerial Work Platforms (AWP). Products serve construction, infrastructure, recycling, mining, utilities and other markets worldwide.
Financial performance
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Net sales | $5,151.5 million | $4,417.7 million | Up 16.6% |
| Gross profit / margin | $1,176.6 million / 22.8% | $871.2 million / 19.7% | Margin up 3.1 percentage points |
| Operating income / margin | $636.5 million / 12.4% | $420.0 million / 9.5% | Income up 51.5%; margin up 2.9 points |
| Income from continuing operations | $516.7 million | $300.2 million | 2023 includes a $42.3 million Swiss deferred-tax benefit |
| Net income | $518.0 million | $300.0 million | Diluted EPS was $7.58 versus $4.32 |
| Operating cash flow | $459.3 million | $261.2 million | Higher operating profitability was the primary driver |
| Free cash flow | $365.7 million | Not clearly stated in the supplied comparison | Non-GAAP; defined as operating cash flow less net capital expenditures |
Segments: MP sales increased 14.7% to $2,227.0 million, with operating income of $358.6 million and a 16.1% margin. AWP sales increased 17.6% to $2,921.7 million, with operating income of $371.3 million and a 12.7% margin. AWP’s margin rose from 7.9% in 2022; MP’s rose from 15.3%.
Cash, debt and liquidity: Year-end cash was $370.7 million; Terex reported $600 million of undrawn revolver availability and total available liquidity of approximately $971 million. Total debt on the balance sheet was $623.2 million, including $595.0 million net carrying value of 5% notes due 2029, $19.0 million of secured borrowings and lease obligations. There were no revolver borrowings at year-end, and the company reported no significant debt maturities until 2029. Working capital was $999.0 million, or 20.4% of trailing three-month annualized sales.
Terex sold approximately $834.8 million of trade receivables during 2023 through factoring arrangements, without material recourse. Inventory increased to $1,186.0 million from $988.4 million. Capital expenditures were $127.2 million before $33.6 million of asset-sale proceeds; 2024 capital expenditures are expected to be approximately $145 million.
Material changes versus 2022
- Sales rose across both segments, supported by demand, improved supply and pricing actions. Management attributed profit and margin gains to higher volume, price realization, manufacturing efficiencies and cost reduction.
- Backlog declined 16.2% to $3,411.1 million: MP fell about 35% to $767.5 million and AWP about 9% to $2,643.6 million. Management cited improved deliveries and, in MP, lower bookings as lead times eased; backlog remained above historical levels.
- Cash from operations increased to $459.3 million from $261.2 million, while year-end debt fell from $775.5 million to $623.2 million. Cash and liquidity increased.
- SG&A rose 19.7% to $540.1 million, reflecting inflation, increased marketing, engineering, technology and incentive compensation expenses, and acquisition-related spending.
Outlook, commentary and risks
Management forecast 2024 sales of $5.1–$5.3 billion and non-GAAP EPS of $6.85–$7.25, excluding potential acquisitions, divestitures, restructuring and other unusual items. It expected sales in the first and second halves to be comparable, with the second and third quarters modestly higher than the first and fourth. Management described North American demand as strong, with some softening in Europe, and anticipated short-term manufacturing inefficiencies as AWP production lines move within the global footprint.
Key risks include the cyclical nature of end markets; inflation, interest rates and geopolitical uncertainty; intermittent supply-chain constraints, especially electronic components; tariffs and trade disputes; foreign-exchange movements; customer financing and credit risk; competition and pricing pressure; product liability and warranty exposure; and cybersecurity threats. A 10% change in the U.S. dollar against other currencies would have had an estimated $50 million effect on the reported operating-income translation impact. Terex said it was in compliance with debt covenants at year-end.
Terex reported a $24 million claim, including tax, penalties and interest, in Brazilian ICMS proceedings and said it intended to contest the matter; the outcome is uncertain. It also disclosed ordinary-course litigation and contingencies, which management did not expect to have a material adverse effect individually or in aggregate. The company remains subject to an SEC injunction and related cease-and-desist obligations. Auditors identified uncertain tax positions and recoverability of deferred tax assets in certain foreign jurisdictions as a critical audit matter. Management and KPMG reported effective internal control over financial reporting.
Other notable items: the lower 2023 effective tax rate of 10.9% (versus 18.1%) was primarily due to the one-time $42.3 million Swiss tax benefit; 2023 included $1.3 million of gains on dispositions of discontinued operations, net of tax. Terex repurchased $60.7 million of shares and paid $43.2 million of dividends. Its February 2024 quarterly dividend was declared at $0.17 per share.
Important facts for investors to verify
- Whether 2024 guidance is supported by current orders and the composition, cancellation risk and conversion timing of the lower year-end backlog.
- How much of 2023 earnings growth reflects ongoing operations versus the one-time Swiss tax benefit, and the resulting sustainable tax rate.
- The quality and repeatability of cash generation, including working-capital needs and the company’s substantial use of receivables factoring.
- Exposure to supply interruptions, tariffs, European demand weakness, production-transition costs and customer financing conditions.
- The potential financial outcome of the Brazilian ICMS claim and other legal, warranty, guarantee and environmental contingencies.