Motley Fool  Aug 1  Comment 
Terex did, however, beat on earnings and grow sales -- and it looks likely to keep on doing so.
SeekingAlpha  Jul 12  Comment 
Motley Fool  Jun 21  Comment 
Jefferies spies a potential 25% profit in the heavy equipment maker's stock.


Terex (NYSE: TEX) manufactures equipment for the construction and mining industries. Construction firms such as Fluor (FLR) and Foster Wheeler (FWLT) buy Terex's cranes, backhoes, excavators, and other related equipment to use in residential and commercial development. Terex also manufactures drilling and crushing equipment, as well as high capacity hauling trucks for use by mining companies like Freeport-McMoRan Copper & Gold (FCX) and Southern Peru Copper (PCU).

Demand for Terex's products depends largely on Commodities Prices and global economic growth. When commodities prices increase, Terex benefits from increased demand for its products from the companies that produce commodities. Similarly, when the global economy is expanding, Terex earns more contracts for infrastructure development.

In addition to private sector demand, governments also impact Terex's sales. As countries industrialize, improve transit systems, and build public facilities, the need for construction equipment rises.

Terex's competitors, such as Bucyrus International (BUCY) and Deere & Company (DE), have also reaped rewards from oversea operations. Another competitor,Caterpillar (CAT), began construction on a 350,000 square foot manufacturing site in Shanghai, and other rivals such Liebherr Group and Manitowoc Company (MTW) also increased output capabilities.[1]. If fears of a global recession are realized, Terex and its competitors will suffer from a supply glut that does not match decreased demand for construction equipment.

Business Overview

Terex had a difficult year financially in 2009. It's net sales fell 52% in 2009, and it swung from an operating profit of $174.5 million in 2008 to a $459.9 million loss in 2009.[2] The company focused on cash generation and cost reduction in an effort to take advantage of our strengthened core businesses as Terex plans for the future. As a result, Terex generated $538 million in cash from inventory reductions in 2009.

Business Segments

Terex's business is divided into four segments. The include: i) Aerial Work Platforms, ii) Construction, ii) Cranes and, iv) Materials Processing and Mining.

Aerial Work Platforms (21% of 2009 Revenues)

Net sales for the AWP segment had an extremely tough year in 2009. Net sales for this segment decreased $1.5 billion to $838 million in 2009 when compared to 2008.[3] The company attributed this decline largely to its North American, Europe, and Asia/Pacific markets declining by $1.5 billion, as many rental customers decided to age their fleets rather than buy new ones.[3]

Construction (24% of 2009 Revenues)

The Construction segment had its net sales decrease by $1.2 billion for 2009 when compared to 2008. Terex attributed this to lower machine sales volumes of approximately $935 million.[4] Demand for both compact and heavy construction products was extremely weak in 2009 due to the slowing construction activity.

Cranes (49% of 2009 Revenues)

The Cranes segment had its net sales decline by $1 billion in 2009, compared to 2008. Lower net sales volume, particularly for tower cranes and rough-terrain cranes, decreased net sales by approximately $1.1 billion, as global commercial construction projects continued to slow and oil related energy demand for rough-terrain cranes remained soft. This decrease was partially offset by approximately $200 million of increased sales volume of higher priced crawler and all-terrain cranes.[4]

Materials Processing and Mining (9% of 2009 Revenues)

In 2009, the Materials Processing and Mining segment earned net revenues of $364 million, a $634 million decline when compared to the previous year. The company attributed $578 million of the decline to weakened sales across all product lines, with the remaining $44 million due to foreign exchange rate changes.[5]

Key Trends and Forces

Global spending on infrastructure will impact Terex's sales growth

Rapid growth of building new infrastructures in Emerging Markets has supported demand for cranes. Merrill Lynch sees countries, especially China, mobilizing their vast savings into infrastructure projects in the future[6]. All of Terex's business segments stand to benefit from the international growth if infrastructure spending remains strong. More mature markets, such as the United States and countries in Western Europe, are more focused on rebuilding and maintaining their infrastructures, but represent a significant amount of spending. In 2007, the United States passed a bill to spend $284 billion over the next six years for highway, energy, and mass transit infrastructure[7].

Commodities Prices influence demand for the mining equipment that Terex sells

The Material Processing and Mining division represents a major component of Terex's business. Demand for this segment's products is largely based on mining output. When Commodities Prices rise, production follows. These mining companies need new equipment and replacement products to maintain and expand operations. Customers use Terex's product line for surface mining, which includes extraction of metals, such as copper and iron ore, which is used in steel production. Rising steel prices also impact Terex in a negative way. Terex's manufactured equipment has steel components. As the price of this cost input rises and Terex cannot pass the prices to customers, then profit margins decrease.

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Terex's wide range of products (makes equipment for mining extraction and commercial, residential, infrastructure construction) leads it to compete with a variety of firms. While no one company competes against Terex in all sectors, it faces competition from larger corporations such as Caterpillar (CAT), Deere & Company (DE), and international giants, Volvo and Komatsu. In addition to other diversified manufacturers, each division of Terex faces competition from niche firms that focus on a particular part of the market. For instance, Terex Material Processing and Mining Unit shares a market with companies like Joy Global (JOYG) and Bucyrus International (BUCY) that only manufacture mining equipment.

In order to compete better, Terex seeks to improve customer responsiveness, and has hired more professionals to sales and marketing to address this issue[8].


  1. [http://www.siteselection.com/features/2006/nov/machinery/ Site Selection Magazine Online
  2. TEX 10-K 2009 Item 7 Pg. 34
  3. 3.0 3.1 TEX 10-K 2009 Item 7 Pg. 38
  4. 4.0 4.1 TEX 10-K 2009 Item 7 Pg. 39
  5. TEX 10-K 2009 Item 7 Pg. 40
  6. Stanford University Research Site
  7. Manitowoc's Fact Sheet
  8. Terex (NYSE: TEX) Form 10-K, FY 2007, "Business Strategy" Page 4-10
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