Terex Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Terex manufactures materials-processing equipment and aerial work platforms, reported in Materials Processing (MP) and Aerial Work Platforms (AWP).
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,235.7 million | $1,002.5 million | +23.3% |
| Gross profit / margin | $278.7 million / 22.6% | $185.8 million / 18.5% | Margin +4.1 percentage points |
| Operating income / margin | $147.7 million / 12.0% | $74.5 million / 7.4% | Income +98.3% |
| Income from continuing operations | $109.9 million | $52.3 million | More than doubled |
| Net income | $112.6 million | $51.9 million | — |
| Diluted EPS | $1.64 | $0.73 | Includes discontinued-operations gain/(loss); continuing-operations EPS was $1.60 vs. $0.74 |
| Cash from operations | $9.1 million | $(51.7) million | Improved |
| Free cash flow | $(10.6) million | Not stated in the filing text for comparison | Use of cash |
Sales growth reflected higher demand and pricing; foreign exchange reduced consolidated sales by approximately $42 million. Improved volume, pricing, product mix, manufacturing efficiencies and expense discipline lifted margins, partly offset by supply-chain disruption, inflation, labor constraints and currency effects. SG&A was $131.0 million, or 10.6% of sales, versus $111.3 million, or 11.1%.
Segments: MP sales rose 22.3% to $553.8 million; operating income increased to $85.3 million and margin reached 15.4% (14.2% prior year). AWP sales rose 24.4% to $685.9 million; operating income increased to $83.1 million and margin reached 12.1% (5.9% prior year). Backlog was $1.2 billion for MP and $3.0 billion for AWP.
Financial position and liquidity
- Cash was $254.2 million at March 31, down from $304.1 million at year-end 2022. Total liquidity was approximately $677 million, including $423 million of undrawn revolver availability.
- Total debt was $777.0 million, including $177.0 million outstanding on the revolver and $600 million of 5% notes due 2029. The revolver weighted-average rate was 6.52%; the company reported no significant debt maturities until 2026 and compliance with credit covenants.
- Current assets were $2,090.4 million and current liabilities were $1,050.5 million. Inventory increased to $1,083.2 million from $988.4 million at year-end. Management cited increased “hospital” inventory amid continuing supply disruption.
- Operating cash flow improved year over year but was largely absorbed by working-capital investment and capital expenditures. Terex sold approximately $183 million of receivables without material recourse during the quarter.
- Financing included $10.2 million of dividends and $3.2 million of share repurchases. The quarterly dividend was raised 15% to $0.15 per share.
Outlook, risks and notable items
Management raised its 2023 outlook to sales of $4.8–$5.0 billion and adjusted, non-GAAP EPS of $5.60–$6.00. It expects strong demand, higher volumes and pricing actions to offset cost pressures. The EPS outlook excludes potential acquisitions, divestitures, restructuring and other unusual items; the company said it could not reconcile this forward-looking non-GAAP measure to GAAP without unreasonable effort.
Management highlighted persistent supply-chain and labor constraints, inflation, volatile credit and interest-rate markets, and macroeconomic and geopolitical uncertainty. Supplier on-time delivery had improved sequentially but remained below historical norms; material shortages and production delays were expected to continue through the rest of 2023. Production-line moves and the new permanent Monterrey facility are expected to create short-term manufacturing inefficiencies, although the facility was reported on time and on budget.
Other risks include foreign-exchange exposure, customer financing and credit quality, cyclical demand, tariffs and input costs, and ordinary-course litigation. Customer credit guarantees had maximum exposure of $115.0 million, with a $6.0 million allowance. A Brazilian ICMS tax dispute involved an assessment of approximately $22 million; Terex contests the claim and said the outcome cannot be assured. The company stated it considered reserves adequate and did not expect contingencies, individually or collectively, to have a material adverse effect. A facility classified as held for sale was sold in April 2023; Terex expected to recognize an approximately $2 million gain.
Management reported a 23.9% non-GAAP return on invested capital. Disclosure controls were concluded effective as of March 31, 2023, and the filing reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether backlog converts to sales and cash as expected, particularly given supplier delays, elevated inventory and customer financing conditions.
- Whether the $4.8–$5.0 billion sales and $5.60–$6.00 adjusted EPS outlook is achieved; review the non-GAAP exclusions and lack of a GAAP reconciliation.
- Cash conversion and working-capital needs, including receivables factoring and inventory levels.
- Effects of interest rates, currency movements, tariffs and input-cost inflation on margins and guidance.
- Developments in the Brazilian ICMS proceeding, customer-guarantee exposure and the expected gain from the April facility sale.