This summary is based on the first quarter fiscal 2008 earnings call conducted by Terex Corporation (TEX: chart) on April 24, 2008.
Management:
Chairman and CEO: Ronald M. DeFeo
Sr. VP and CFO: Phillip C. Widman
President and COO: Tom Riordan
President, Terex Aerial Work Platforms: Tim Ford
President, Terex Construction: Robert Isaman
President, Terex Cranes: Richard Nichols
Key Investors Issues
- EPS were $1.59 per share compare to $1.09 per share last year.
- Net income rose to $163.3 million compared to $113.8 million for the same period a year ago.
- Net sales reached $2.36 billion, up 17.4% on the year-ago period.
First Quarter Highlights
Net income was $163.3 million, or $1.59 per share, compared to net income of $113.8 million, or $1.09 per share, for the first quarter of 2007, an increase in earnings per share of 46%.
Net income for the first quarter of 2007 included a $12.5 million pretax charge related to the early extinguishment of the company''s 9-1/4% Senior Subordinated Notes, which negatively impacted earnings per share by 8 cents per share.
Net sales reached $2,362.7 million, an increase of $350 million, or 17.4%, from $2,012.7 million in the first quarter of 2007.
Global infrastructure spending continued to drive increased demand in many product categories, particularly Cranes and Materials Processing & Mining equipment, as well as the Aerial Work Platforms product category in North America. In addition, the increase in net sales versus the prior year period was favorably impacted by approximately $122 million due to the translation effect of foreign currency exchange rate changes, primarily the strength of the Euro, British Pound and Australian Dollar relative to the U.S. Dollar, as well as the inclusion of $38 million in net sales from recent acquisitions.
Income from operations was $256.3 million, an increase of $55.6 million, or 27.7%, from $200.7 million in the first quarter of 2007.
- The operating margin was 10.8%, up from last year’s first quarter operating margin of 10%. The results for the first quarter of 2008 included the effect of inventory valuation adjustments and intangible amortization of approximately $5 million related to the acquisition of both Superior Highwall Miners (SHM) and ASV.
- Leverage from revenue growth in more profitable segments and the positive impact of pricing adjustments more than offset the unfavorable performance of certain product lines.
- Selling, general and administrative costs increased $46.4 million versus the prior year period, reflecting continued investment in support of various operational improvement initiatives, including supply chain management, global sales and service capabilities in developing markets, marketing, implementation of the Terex Management System (management information system), and strategic sourcing initiative. Additionally, approximately $13 million of this impact was due to the translation effect of foreign currency exchange rate changes. Selling, general and administrative expenses as a percentage of net sales increased when compared with 2007, to 10.9% of net sales versus 10.5% of net sales in the prior year quarter.
Interest expense was $25.5 million, compared with $14.2 million in the first quarter of 2007, reflecting increased outstanding debt versus year ago levels resulting from the $800 million senior subordinated note offering completed in November 2007.
- Interest income also increased $5.7 million versus the prior year, as the majority of the proceeds of the issuance of this new debt were held in cash and cash equivalents until the consummation of the ASV acquisition in late February 2008.
- Other income totaled $6.6 million, compared with $4.6 million for the first quarter of 2007, primarily attributable to foreign currency translation gains.
The effective tax rate for continuing operations was 33.8%, compared to the effective tax rate of 37.5% for the first quarter of 2007, as the mix of international business and the effect of recently reduced statutory rates in several European countries had a positive impact.
In the first quarter of 2007, the effect of a discrete charge for the repatriation of international cash negatively impacted the effective tax rate.
Return on Invested Capital (ROIC) was 27.3% for the trailing twelve months ended March 31, 2008.
The company has altered its method of how ROIC is calculated to now provide the metric on an after-tax basis.
- Cash flow from operations was a use of $190.4 million, higher use of cash when compared with the prior year’s first quarter. Strong earnings were more than offset by a decrease in customer advances due to certain large crane and mining equipment deliveries in the first quarter, as well as an increase in working capital ahead of anticipated sales in the second and third quarters.
- Debt, less cash and cash equivalents, increased $522 million to $769.2 million, compared to the first quarter of 2007, reflecting the impact of recent acquisitions and an increase in working capital, offset somewhat by increased earnings. In addition, the company repurchased approximately $52 million of Terex common stock pursuant to its previously announced stock repurchase program. Through March 31, 2008, the company repurchased approximately $218 million of its common stock under the total authorized $700 million program, which expires June 30, 2009. The company’s performance has led to a ratio of Debt, less cash and cash equivalents, to Total Capitalization of 23.3% at the end of the first quarter of 2008, with the largest influence on outstanding indebtedness being the cash paid in late February to acquire ASV.
Working Capital as a percent of Trailing Three Month Annualized Sales was 24.9% at March 31, 2008, as compared to approximately 21.5% at March 31, 2007.
