Terex Corporation (NYSE: TEX) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Terex manufactures materials processing machinery and aerial work platforms, reporting through Materials Processing (MP) and Aerial Work Platforms (AWP). All amounts below are U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Net sales | $1,120.5 million | $993.8 million | +12.7% |
| Gross profit / margin | $237.1 million / 21.2% | $178.5 million / 18.0% | Margin +3.2 percentage points |
| Operating income / margin | $120.8 million / 10.8% | $74.2 million / 7.5% | Income +62.8%; margin +3.3 points |
| Net income | $81.8 million | $48.1 million | +70.1% |
| Diluted EPS | $1.20 | $0.68 | Up from prior year |
For the first nine months, sales were $3,200.1 million, up 10.5%; operating income was $299.2 million, up 15.9%; net income was $207.8 million versus $162.1 million; and diluted EPS was $2.99 versus $2.29. Nine-month gross margin was 19.9%, down from 20.2%.
Segments and operating drivers
- MP: Q3 sales of $457.9 million, up 9.4%; operating income of $66.8 million and margin of 14.6%, versus 13.6% a year earlier.
- AWP: Q3 sales of $662.6 million, up 15.7%; operating income of $63.5 million and margin of 9.6%, versus 6.1% a year earlier.
- Management attributed improved results mainly to pricing, favorable mix and higher volume. Inflation, freight, labor, manufacturing inefficiencies and foreign exchange were offsets. Currency movements reduced Q3 consolidated sales by about $78 million.
- Total backlog, including deliveries beyond 12 months, was $1.2 billion in MP, up 14%, and $2.7 billion in AWP, up 44%, year over year.
Cash flow, balance sheet and liquidity
- Q3 operating cash flow was $84.9 million; Q3 free cash flow was $53.2 million. Nine-month operating cash flow was $104.2 million, versus $324.1 million in 2021, and free cash flow was $25.6 million.
- Cash was $231.7 million at September 30, down from $266.9 million at year-end 2021. Inventory rose to $981.2 million from $813.5 million, contributing to working-capital pressure.
- Terex reported approximately $658 million of available liquidity: $232 million cash and $426 million undrawn revolver availability. Management said it expected adequate liquidity for at least the next 12 months.
- Total debt was approximately $826.5 million, including $173.7 million drawn on the revolver and $54.9 million of term loans, plus $600 million of 5% senior notes. There were no significant maturities until 2024. The company was in compliance with credit-agreement covenants.
- For the first nine months, capital expenditures were $78.8 million; Terex sold about $458 million of receivables without material recourse. Share repurchases and dividends were among the uses of cash.
Outlook, risks and notable items
- Terex raised its 2022 outlook to non-GAAP EPS of $4.00–$4.20 and net sales of approximately $4.3 billion. The EPS outlook excludes unusual items and could not be reconciled to GAAP without unreasonable effort.
- Management expected to be price-cost neutral for full-year 2022, while noting ongoing supply constraints, inflation, foreign-exchange volatility, geopolitical uncertainty and restrictive COVID-19 policies in China. Supply shortages and production delays were expected to persist through the remainder of 2022.
- Two MP acquisitions closed in 2022: Steelweld for approximately $6 million and ProAll for approximately $39 million, including estimated contingent consideration. The filing also describes a Q3 acquisition of a waste-sorting robotics business, but does not provide its terms in the supplied text.
- A Brazilian ICMS tax dispute involves an assessment of approximately BRL 107 million (about $20 million); Terex contests the claim and says the outcome is uncertain. Customer credit guarantees had maximum exposure of $120.7 million and an allowance of $7.3 million at quarter-end.
- Other key risks include supplier dependence, commodity and logistics costs, tariffs and trade disputes, foreign-exchange movements, cyclical end markets, customer financing availability, litigation and the ability to generate cash and service debt. A 10% currency movement relative to rates used in the nine-month results was estimated to affect operating-income translation by about $27 million.
Most important facts for investors to verify
- Whether pricing and cost reductions can continue to offset inflation, supply disruption and unfavorable currency movements.
- Whether elevated inventory converts into deliveries and cash flow; nine-month operating cash flow was substantially below the prior-year period.
- Whether Terex achieves its raised 2022 sales and non-GAAP EPS outlook, and how excluded unusual items affect GAAP results.
- How debt, revolver usage and liquidity evolve, including the timing of term-loan repayment and the 2024 maturity.
- Developments in the Brazilian tax case, customer guarantee exposure and other litigation or contingencies.