Construction and building equipment producer Terex Corporation (NYSE:TEX) posted second-quarter earnings results Wednesday afternoon. And, just as management predicted, a rebound in its aerial work platform sales drove a profitability improvement even as total revenue fell.
Overall results were above expectations, but a weakening operating environment led executives to lower their full-year guidance on both the top and bottom lines. Here's a look at how Terex performed relative to Wall Street's second-quarter estimates:
|Revenue||$1.8 billion||$1.83 billion|
|Profit||$0.73 per share||$0.78 per share|
Terex's aerial work platforms division was the only one that managed sales growth against either the prior-quarter or prior-year period. That division also logged a hefty profitability gain, jumping to a 15% operating margin from 9% a quarter ago. The materials processing division, meanwhile, contributed higher profits despite lower sales. Management expects both of these product lines to strengthen through the back half of this year.
However, the rest of Terex's business is facing stiff headwinds. Terex's crane sales are under pressure from competitor price cuts and weak overall demand. The market for cranes "remains challenging and we are not anticipating any near term improvements," CEO Ron DeFeo said in a press release. At the same time the construction unit is suffering from weak backhoe loader sales and a slowdown in overseas markets, particularly India and Germany.
Despite those struggles, Terex logged two important financial improvements in the second quarter. Operating margin rose to 8.1% of sales from 7.8% a year ago. And Terex generated $76 million in free cash flow this quarter, compared to just $3 million in the prior-year period.
Terex's order backlog fell by 7% thanks to weakness in the materials processing and cranes segments. In addition, management has noticed stepped up pricing pressure from rivals and a shift in sales toward relatively less-profitable geographies: Terex's U.S. business shrank by 7% in the second quarter while Europe, Asia, and Latin America all booked slight gains.
Together, these headwinds convinced the company to lower its full-year outlook on both sales and profits. Defeo and his executive team now see earnings weighing in at $2 per share, down from the most recent $2.15-per-share target. The revenue estimate fell to $6.25 billion from $6.4 billion. "Although we had a solid second quarter performance, given where we are in the year and the challenging environment we are operating in, we now believe we will be in the low end of our previously announced earnings and revenue guidance for the full year 2015," he said.