Terex Turns a Stagger Into a Stand

Like Rocky Balboa after enduring a multi-round beating, heavy equipment manufacturer Terex (NYSE: TEX  ) is ready to make its stand.

This company has been jabbed by painful losses and smacked around by debt concerns. Major competitor Bucyrus (Nasdaq: BUCY  ) even bit off an attractive chunk of the company the way Mike Tyson downsized Holyfield's ear. To be sure, Terex has staggered through these past rounds of economic malaise, but with a scrappy resilience this manufacturer will come out swinging for as long as the bout goes on.

Terex turned in a modest second quarter loss of $13.1 million following a 14% increase in net sales to $1.08 billion. As capacity utilization improved and a cost-cutting binge bore fruit, Terex has finally seen some stabilization of its operating environment and welcome expansion of gross margins. On a consolidated basis, in fact, Terex saw gross margin double from the prior year (from 6.9% to 14.3%).

While the company's $1.9 billion in long-term debt has remained refreshingly stable this year, Terex has beefed up its cash balance from $930 million at the start of the year to $1.5 billion through the first half. In addition to a cash windfall from the Bucyrus transaction, Terex also picked up 5.8 million Bucyrus shares. I maintain that mining equipment boasts one of the healthiest long-term outlooks among heavy equipment demand segments, and I have repeatedly promoted Bucyrus and Joy Global (Nasdaq: JOYG  ) with Don King-like confidence. I urge Terex to bury those shares in a vault.

Looking to the manufacturer's all-important order backlogs, we find this leading indicator down 18% from prior-year levels, and down nearly 10% from the first quarter of 2010. Sequentially, backlogs in the construction and materials processing units increased by 7.4% and 24%, respectively. Carrying the consolidated backlog into decline, however, cumulative demand for cranes and aerial work platforms continues to suffer.

On a positive note, Terex noted an uptick in order inquiries for cranes in the port equipment category. For Fools like me who were mystified by the decision to proceed with the acquisition of port equipment manufacturer Fantuzzi, recent intermodal freight improvements revealed by railroad operator CSX (NYSE: CSX  ) suggest that Terex's bet on global container traffic may have been a defining move. Even the cautious queen of dry bulk, Diana Shipping (NYSE: DSX  ) , has dipped her toes into containerships.

While Terex makes its stand against a raging storm of economic headwinds and uncertainty, investors ultimately must decide whether Terex is a company they wish to stand beside. Terex Chairman and CEO Ron DeFeo is "cautious, but positive, about our prospects for continued improvement." If Terex can parlay emerging market strength into growth as effectively as competitor Caterpillar (NYSE: CAT  ) has done, then I too will turn cautiously positive on the outlook for Terex shares. For now, however, I am just plain cautious.

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Fool contributor Christopher Barker is the Nat King of coal and the wild boar of iron ore. He can be found blogging actively and acting Foolishly in the CAPS community under the name TMFSinchiruna. He tweets. He owns shares of Diana Shipping. The Fool owns shares of Terex. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy is heavier than a container crane.


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