Terex Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Terex manufactures aerial work platforms and materials processing machinery, reported in Aerial Work Platforms (AWP) and Materials Processing (MP).
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,038.7 million | $690.5 million | $1,902.9 million | $1,524.1 million |
| Gross profit | $231.6 million | $107.1 million | $407.0 million | $243.8 million |
| Gross margin | 22.3% | 15.5% | 21.4% | 16.0% |
| Operating income | $122.5 million | $7.4 million | $184.0 million | $0.3 million |
| Operating margin | 11.8% | 1.1% | 9.7% | Less than 0.1% |
| Net income (loss) | $73.9 million | $(9.2) million | $114.0 million | $(34.1) million |
| Diluted EPS | $1.04 | $(0.13) | $1.61 | $(0.49) |
Q2 AWP sales rose 43.8% to $595.2 million, with operating income of $65.2 million versus a $5.0 million loss. MP sales rose 67.2% to $440.8 million; operating income increased to $72.1 million, a 16.4% margin versus 8.9%.
Cash flow and liquidity: Six-month operating cash flow was $269.2 million, versus $12.3 million a year earlier; free cash flow was $140.9 million. Q2 free cash flow was $101.4 million. Six-month investing cash use was $48.6 million and financing cash use was $337.7 million. June 30 cash and cash equivalents were $542.2 million on the balance sheet; cash-flow presentation, including held-for-sale cash, was $547.5 million. The company reported approximately $1.1 billion of available liquidity, including $600 million of undrawn revolver capacity.
Debt: Balance-sheet debt totaled $894.2 million, down from $1,173.8 million at December 31, 2020. The company prepaid approximately $279 million of term loans during the first half. It issued $600 million of 5% notes due 2029 and redeemed $600 million of 5-5/8% notes due 2025, recording a $25.6 million Q2 loss on early extinguishment of debt ($27.7 million for the first half). No revolver borrowings were outstanding; no significant debt maturities were expected until 2024.
Changes, outlook and risks
- Sales and profitability improved substantially from the pandemic-affected prior-year quarter, reflecting stronger demand, higher volumes, improved manufacturing efficiency and cost management. Foreign exchange also increased Q2 sales by approximately $48 million. Higher input costs and incentive compensation partially offset gains.
- Management raised its 2021 outlook to EPS of $2.85–$3.05 and net sales of approximately $3.9 billion. The EPS outlook excludes potential acquisitions, divestitures, restructuring and other unusual items; the filing says it cannot reconcile this forward-looking non-GAAP measure to GAAP without unreasonable effort.
- Management described demand as robust and expected end-market strength and increased AWP fleet replenishment to continue. Backlog was up 182% year over year in AWP and 231% in MP.
- Supply constraints, logistics disruption, raw-material shortages and supplier COVID-related downtime were limiting production; management expected these headwinds to persist through 2021. Steel and other input-cost inflation and tariffs could pressure margins if not recovered through pricing, suppliers or duty drawbacks.
- Other risks include COVID-19 and cyclical markets, foreign-exchange and interest-rate exposure, customer credit and financing availability, debt covenants, and trade-policy changes. Terex reported compliance with credit-agreement covenants at June 30.
- The company disclosed a Brazilian ICMS tax dispute with an assessed amount of approximately BRL 102 million ($20 million), which it is contesting. Credit guarantees had $201.3 million of maximum exposure determined at inception and a $12.5 million loss allowance. Management said it believed recorded contingency reserves were adequate and material losses beyond accruals were remote.
- Terex acquired China manufacturing assets for approximately $17 million in May. On July 6, after quarter-end, it acquired Ireland-based MDS for approximately $19 million. The board declared a $0.12-per-share dividend in July, payable September 20.
Most important facts to verify
- Whether demand and reported backlogs convert to shipments and revenue despite continuing supply-chain and logistics constraints.
- Whether the $2.85–$3.05 EPS and approximately $3.9 billion sales outlook is achieved, and the impact of excluded unusual items.
- How input-cost inflation, tariffs, foreign exchange and pricing affect margins and cash generation.
- Debt repayment, refinancing terms, liquidity and covenant headroom; note the $20 million Brazil tax assessment and customer-guarantee exposure.
- Post-quarter MDS acquisition terms and integration, and the distinction between $542.2 million of balance-sheet cash and $547.5 million of cash-flow cash including held-for-sale amounts.