22.10.2008

Genie sales down 9%

Terex Aerial Work Platforms, largely Genie, has reported net sales for the nine months to the end of September of $1.77 billion up 1.5 percent on the same period in 2007. While gross margins dropped 15 percent to $428 million falling to 24 percent of sales compared to nearly 29 percent this time last year.

Operating income for the period fell nearly 30 percent to $253 million or14.3 of sales compared to over 20 percent in 2007.

The aerial lift order book at the end of September was 60 percent down on September 2007 at $257 million, a 39 percent drop on the quarter.

However the nine month numbers do not tell the full story, due to the significant slow down over the past four months or so.

Revenues in the third quarter dropped almost nine percent to $514 million (a 12 percent fall if currency gains are stripped out). Meanwhile gross margins were halved to $78.6 million -15.3 percent of sales, compared to 28.6 percent in the same period of 2007.

Operating income plummeted more than 80 percent to $21.3 million or just 4.1 percent of sales compared to almost 20 percent of sales last year. This is due to higher costs, particularly steel which has not yet been passed on in the form of higher prices.

Terex says that the slowdown is due to customers in North America and Western Europe significantly slowing their purchases during the third quarter of 2008 due to the softening in construction activity and uncertainty regarding the global economy.

It expects that many customers will continue to reduce or defer capital spending as they age their fleets in the short term, but that they will resume normal capital spending sometime over the next nine to 18 months.

In the meantime Terex expects sales in 2009 to fall by around 30 to 40 percent, but will move the Utilities business from the road building sector into the AWP business, while road building will be absorbed into the construction division.

Some of the fall off in these areas is compensated by strong demand in developing markets, particularly in Latin America and Asia, while China and Korea are coming along and Australia remains strong due to demand from the mining sector.

As a result of the slowdown, Terex has cut its AWP workforce by six percent in the third quarter, in addition to the elimination of temporary agency workers in July. In the fourth quarter, the company expects to make a further 18 percent reduction in order “to better align the cost structure with expected customer demand.”

Temporary shutdowns at manufacturing facilities which occurred in the third quarter and will continue to be used to reduce production output. The company says that it will re-evaluate employment levels in the first quarter of 2009 based on customer order rates and production levels.

Additionally, production expansion plans are being slowed such as the new facility in China will be developed at a slower pace than originally planned.

Terex Group

Total sales for the first nine months at Terex increased by almost 20 percent to $7.8 billion, while the third quarter increased by 14.5 percent, although if acquisitions and currency factors are removed the year on year change is six percent. This due to a strong performance in both the Cranes and Materials Processing & Mining.

Pre tax profits for the nine months were up over eight percent to $738 million, However the third quarter saw pre tax profits fall by 40 percent to $139 million, due to the poor performances in AWP and construction, but also due to restructuring costs and a $15 million charge for a crane recall programme.

Ron DeFeo, Terex chairman and chief executive said: “While we continue to make progress on our improvement initiatives, the current environment is challenging, marked by a continued global credit crisis and worsening economic conditions, particularly in the U.S. and Western Europe.”

“Input costs continue to present challenges for us, although we expect these to moderate over time. At this time, our price increases have not yet fully offset our total material cost increases. We are taking aggressive actions to better position the Company for the expected reduced net sales levels of the next twelve months, in particular in the AWP, Construction, and Materials Processing businesses.”

“At the same time, we are continuing to invest in developing markets and our improvement initiatives, as well as increasing Cranes and Mining capabilities to meet the growing demand in those areas.”

“We expect 2009 net sales, including the effect of announced acquisitions, to be similar to 2008, driven by continued strong results in Cranes and Mining, offset by lower net sales in AWP, Materials Processing and Construction.”

Vertikal Comment

There are few surprises here, apart from the fact that the company is still ahead of last year, in revenue terms, at the nine month stage. It is easy to forget that the AWP market showed its first signs of slowing over a year ago when large order backlogs began to fall.

Perhaps the other surprise is that Terex is expecting the market to drop, a further 30 to 40 percent. This is far higher than most other companies, manufacdturers or rental businesses, are predicting.

No matter how you look at it seems a tad on the high side, given that a number of markets are still good, that the market is nowhere near mature, that long term underlying demand is still growing and that the company is planning to increase prices.

Estimates for the earthmoving and other mature equipment markets, more associated with residential construction are that the market will bottom out around 25 percent down year on year. You woudl expect aerial lift sales to at the very least perform no worse than that.

However by planning its cost base for this sort of market drop, Terex will at least be sure to that it gets ahead of the game in terms of reductions.

All too often being too optimistic leads to multiple cutbacks and knocks to employee morale every month, rather than making fewer larger adjustments and then rebuilding ready for a pick up in 2010.