Two things in construction equipment maker Terex's (NYSE: TEX ) fourth-quarter results particularly caught my attention. First, a visible rebound in its construction segment, and second, improving demand from Europe. Since construction is a critical business and Europe an important market, is Terex now a must watch? Yes, I think so.
Construction: roadblock and recovery
2011 was a tough year for Terex's construction business, as the company had to upgrade products to meet the tier IV emission standards. In fact, all players in the industry, including equipment king Caterpillar (NYSE: CAT ) had to cope with the situation. Terex feels the impact won't be significant in 2012; this raises hope.
But what's really heartening is to see signs of a strong bounce-back. Terex not only narrowed losses to $2.8 million from $4.3 million in the year-ago period -- sales also rose a solid 29%. An uptick in U.S. construction activity has been driving up demand for construction equipment and cranes, as evidenced by the 40% jump in Manitowoc's (NYSE: MTW ) crane sales in the fourth quarter. Higher orders pushed Terex's construction segment's full-year backlog up by 75%.
Europe into the play
The interesting part is, rising demand from Europe played a key role in not just revving up Terex's order book, but also its sales during the quarter. To top that, Terex is downsizing operations in its European construction businesses and hiking prices, initiatives that should ensure that its construction segment gets back on track soon.
Terex has considerable European exposure, and things might not be so bleak in the region after all. In fact, Caterpillar reported increased orders from European dealers during its fourth quarter, and is expecting sales from the region to climb up this year.
A few months back, when Terex acquired European-based Demag Cranes, some people were skeptical about the timing of the deal. But, now, it looks like the move couldbe hugely transformative for Terex. Apart from broadening its product range, Demag will also help Terex gain a stronger foothold in developing nations.
The Foolish bottom line
So does it really matter if Terex's bottom line is still in the red? The company is generating solid revenue (a 47.5% jump in the fourth quarter), cutting operating costs, and expanding.
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