Thursday, 21 February 2013

Terex - 2012 Fourth Quarter Update

Terex recently reported fourth quarter and annual earnings, both of which were significantly better than the year-ago periods, though the improvement was due in part to easy comparisons.  More importantly, management forecasted 2013 earnings of $2.40-2.70, and published their internal "goal" of reaching $5 in EPS by 2015, but insisted that this wasn't "guidance."  The CEO, in the past a bit of a shop-a-holic, promised to move towards the goal by focusing on operational improvements, not through acquisitions.  In addition, the company is aiming for a 15% return on invested capital in 2015.

Just as important as the P&L is the balance sheet, which has been strengthened considerably over the past few years, and the company pledged further improvements in the years to come.  Indeed, the 2015 EPS goal appears to assume little or no remaining debt (management forecasted operating income in 2015 of $1 billion, and assuming a 35% tax rate and 120 million shares outstanding, EPS would amount to around $5.40, leaving little room for interest payments).

The $5 goal is a bit light, so Terex shareholders must be hoping that management is under-promising with the intention of over-delivering.

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