Terex Corporation (NYSE: TEX) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Terex manufactures aerial work platforms, utility equipment and materials-processing machinery, reported in Aerial Work Platforms (AWP) and Materials Processing (MP).
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $864.2 million | $833.6 million |
| Gross profit / margin | $175.4 million / 20.3% | $136.7 million / 16.4% |
| Operating income (loss) / margin | $61.5 million / 7.1% | $(7.1) million / (0.9)% |
| Net income (loss) | $40.1 million | $(24.9) million |
| Diluted EPS | $0.57 | $(0.35) |
| Cash provided by (used in) operations | $138.1 million | $(88.7) million |
Sales rose 3.7%; foreign exchange contributed approximately $35 million. Gross profit increased 28.3%, while SG&A declined 20.8% to $113.9 million, reflecting cost reductions, partly offset by higher incentive compensation. The effective tax rate was 16.2%, versus a 3.1% benefit rate in the prior-year loss period.
- AWP: Sales fell 6.8% to $476.7 million; operating income improved to $26.6 million from a $5.9 million loss. Supply and logistics delays constrained telehandler and utility equipment sales. Segment backlog was up 82% year over year.
- MP: Sales increased 19.8% to $378.2 million; operating income rose to $49.1 million from $25.0 million, with a 13.0% operating margin. Segment backlog was up 162% year over year.
Cash, debt and liquidity
Operating cash flow was $138.1 million; company-defined free cash flow was $39.5 million, after a $92.5 million increase in TFS assets and $6.1 million of net capital spending. Investing activities used $6.1 million and financing activities used $214.9 million. Cash and cash equivalents for cash-flow reporting ended at $577.8 million, including cash classified as held for sale; the balance sheet reports $572.9 million in continuing-operations cash.
Terex reported approximately $1.2 billion of liquidity at March 31: $577.8 million cash and $600 million of undrawn revolver availability. Total balance-sheet debt was approximately $979.2 million, down from $1,173.8 million at December 31, 2020. The company prepaid approximately $196 million of term loans during the quarter; no revolver borrowings were outstanding. It reported no significant debt maturities until 2024 and compliance with credit-agreement covenants at quarter-end.
Working capital was $653.4 million, or 18.9% of trailing-three-month annualized sales. Terex sold approximately $109 million of trade receivables without material recourse and received $99.4 million from a finance-receivables sale, recognizing a $5.6 million gain.
Outlook, commentary and risks
Management raised its 2021 outlook to adjusted, non-GAAP EPS of $2.35–$2.55 and net sales of approximately $3.7 billion. Management cited strengthening end markets, vaccine deployment and anticipated AWP fleet replenishment, while cautioning that supply-chain headwinds persist. The filing says it cannot reconcile the forward-looking non-GAAP EPS measure to GAAP without unreasonable effort.
Management highlighted strict cost discipline, a 2021 target of SG&A at 12.5% of sales or better, and the planned transfer of Oklahoma City telehandler production to Monterrey, Mexico. It also described MP localization plans in China and continued investment in connected products and digital capabilities.
- Material shortages, logistics disruptions, supplier downtime and rising steel prices constrained production and are expected to remain a headwind through 2021. Expiring Section 301 tariff exclusions add cost pressure.
- Other disclosed risks include COVID-19 and market cyclicality, foreign-exchange movements, customer and supplier credit conditions, and the ability to maintain liquidity and comply with debt covenants.
- In April 2021, Terex issued $600 million of 5% notes due 2029 to fund redemption of its $600 million 5⅝% notes due 2025, redeemed for $622.9 million including premium and accrued interest. It expected a roughly $23 million extinguishment loss and approximately $4 million of annual cash-interest savings. The April credit-agreement amendment extended the revolver to 2026, subject to a springing maturity provision; Terex expected an additional roughly $2 million extinguishment loss.
- The company recorded a $2.1 million debt-extinguishment loss in Q1 for the term-loan prepayment; that prepayment was expected to reduce annual cash interest by approximately $7 million.
- A Brazilian ICMS tax dispute concerns an assessment of approximately BRL 102 million (about $18 million). Terex contests the claim; the ultimate outcome is uncertain. Maximum exposure at inception under customer credit guarantees was $195.3 million at March 31, 2021.
Terex reported that disclosure controls were effective at March 31, 2021, with no material changes in internal control over financial reporting during the quarter. It reported no material changes to the risk factors previously disclosed in its 2020 Form 10-K.
Important facts for investors to verify
- Whether strong segment backlogs convert into deliveries and sales despite ongoing supply, logistics and input-cost pressures.
- Progress against the $3.7 billion sales and $2.35–$2.55 adjusted EPS outlook, including the effects of foreign exchange and any non-GAAP-to-GAAP adjustments.
- Cash conversion and working-capital needs as production and demand recover, including use of receivables sales and TFS asset transactions.
- Post-quarter debt refinancing costs, realized interest savings, revolver terms and compliance with reinstated financial covenants.
- Developments in the Brazil ICMS proceeding and customer guarantee exposure.