President Obama visited a Caterpillar (NYSE:CAT) plant Thursday to assure an anxious nation that his stimulus plan will contain this tidal wave of job losses, but neither Caterpillar's CEO nor Terex (NYSE:TEX) shareholders appear to share his optimism.
Estimating that only 20% of the stimulus package would support activities beneficial to Caterpillar, CEO Jim Owens later clarified that the 22,000 layoffs previously announced would go forward, adding that more are likely to follow. Meanwhile, investors ripped into competitor Terex's shares after the company revealed the extent of recent declines in demand for its products and warned of a potential liquidity crisis.
Terex forewarned of painful quarterly earnings last week, but the bite was worse than the bark. Nearly a third of the company's market capitalization was devoured Thursday, after Terex announced it had lost $421.5 million in the fourth quarter on a 20% slide in revenue. While that loss includes a goodwill impairment charge of nearly $460 million, Terex offered no offsetting optimism to ease the pain. To the contrary, the release contained such a laundry list of disturbing news that we need a bullet list to cover it all:
- Terex warned that it "may likely" breach the terms of a debt covenant and is seeking waivers like the one recently granted to bulk shipper DryShips (NASDAQ:DRYS) to avoid default. Terex carries about $1.4 billion in debt.
- Terex revealed that demand was deteriorating substantially, with a rapidly declining backlog. With customers canceling and delaying orders, the backlog for aerial work platforms declined by more than 67% from the previous quarter. Even the segment that builds equipment for the mining industry experienced a 31% decline from third-quarter levels, suggesting that mining specialists like Joy Global (NASDAQ:JOYG) and Bucyrus (NASDAQ:BUCY) might not escape unharmed.
- While declining to issue precise guidance, Terex expects a further 30%-35% decrease in sales during 2009, leading one analyst to trim earnings expectations by more than 50%.
- Joining competitors like Caterpillar and Deere (NYSE:DE), Terex announced 5,000 layoffs, which amounts to more than one-fifth of its total workforce.
Only time will reveal whether President Obama's stimulus plan can jump-start the industry enough -- or in time -- to avoid eventual bankruptcies in the sector. With a list of challenges extending further than one of the company's giant excavator arms, I urge Fools to approach Terex with extreme caution.
Further Foolishness:
- China's stimulus package looked far more industry-friendly.
- We expected some near-term weakness from the mining sector.
- One steelmaker is feeling under-stimulated.
