On October 27, 2022 Terex Corporation (NYSE: TEX) reported its results for the third quarter 2022 (Press release, Zhejiang Terex Pharmaceutical, OCT 27, 2022, View Source [SID1234622526]).
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CEO Commentary
"We are pleased with our strong financial performance in the quarter as a result of continued progress on our strategy and the relentless focus of our team members to deliver our products and solutions to customers and dealers," said Terex Chairman and Chief Executive Officer John L. Garrison, Jr. "We grew sales 21% when adjusting for FX rates and ended the quarter with total backlog of $3.9 billion, an increase of 33% year-over-year and a clear indication of the strength of demand from our customers."
"We remain focused on executing our multi-year growth plan and continue to invest in new technologies and products across our businesses. In our Materials Processing segment we expanded the capabilities of our growing environmental business with the recent acquisition of ZenRobotics, allowing us to deploy robot technologies that pick, sort and recycle waste material. In addition, our Genie team continued to execute their product electrification plans with the introduction of a new lithium-ion battery option for the line of GS E-Drive slab scissor lifts. We are proud of our execution this quarter despite continued global supply chain disruptions, significant inflationary pressures and foreign exchange rate volatility. Following the strong performance in the third quarter, we are raising our full year EPS outlook to a range of $4.00 to $4.20. Our globally recognized brands, industry-leading and innovative new products, backlog, and strong balance sheet position us well to successfully navigate the near-term macro challenges and deliver long-term value."
Third Quarter Operational and Financial Highlights
Net sales of $1.1 billion in the third quarter of 2022 increased 12.7%, compared to $1.0 billion in the third quarter of 2021. The increase was primarily due to improved price realization necessary to mitigate rising costs across all segments and healthy demand for our products which was partially offset by a 7.9% negative impact from changes in foreign exchange rates.
Income from operations of $120.8 million, or 10.8% of net sales in the third quarter of 2022, improved from $74.2 million, or 7.5% of net sales, in the prior year. The year-over-year increase of $46.6 million was driven by price realization, favorable mix and incremental margin achieved on higher sales volume, which more than offset cost increases and the negative impact of foreign exchange rates during the quarter. Price / cost dynamics improved sequentially, increasing operating margins by 120 bps from the second quarter of 2022.
Income from continuing operations in the third quarter of 2022 was $81.8 million, or $1.20 per share, up 79.1% compared to $47.5 million, or $0.67 per share, in the third quarter of 2021.
Return on invested capital of 19.0% significantly exceeded our cost of capital as we continued to invest in the business and return cash to shareholders through dividends and share repurchases.
Business Segment Review
Materials Processing
Net sales were $457.9 million for the third quarter of 2022, up 9.4% or $39.2 million year-over-year, primarily due to price realization necessary to mitigate rising costs and healthy demand for our products across multiple businesses. Excluding the impact of foreign exchange rates of approximately $43 million, net sales increased 19.6% year-over-year.
Income from operations increased to $66.8 million for the third quarter of 2022, or 14.6% of net sales, compared to $57.1 million, or 13.6% of net sales, in the prior year. The $9.7 million increase was driven by price realization, favorable mix and incremental margin on higher sales volume and partially offset by significant inflationary pressures and the negative effects of foreign exchange rate changes.
Aerial Work Platforms
Net sales were $662.6 million for the third quarter of 2022, up 15.7% or $90.1 million year-over-year. Excluding the impact of foreign exchange rates of approximately $35 million, net sales increased 21.9% year-over-year. The increase was primarily due to price realization necessary to mitigate rising costs and higher demand driven by fleet replacement and end-market growth for aerial work platforms. Utility product growth was strong in North America.
Income from operations increased to $63.5 million for the third quarter of 2022, or 9.6% of net sales, compared to $34.9 million, or 6.1% of net sales in the prior year. The $28.6 million increase was driven by price realization, favorable mix and incremental margin on higher sales volume and was partially offset by increased costs, as well as the negative effects of foreign exchange rate changes.
Income from operations increased 81.9% year-over-year and margins were up sequentially from the second quarter of 2022 by 190 basis points. This sequential improvement was the result of strong execution on strict cost management and pricing actions to mitigate inflationary cost pressures.
Disciplined Capital Allocation
As of September 30, 2022, the Company had liquidity (cash and availability under our revolving line of credit) of $658.0 million.
Working capital of $895.7 million was 20.0% of trailing three month annualized net sales and reflects higher inventory levels as a result of supply chain disruptions.
For the year-to-date period, Terex deployed $128.9 million for capital expenditures and growth investments.
Year-to-date, Terex has executed $92.0 million in share repurchases and paid $26.8 million in dividends.
CFO Commentary
Julie Beck, Senior Vice President and Chief Financial Officer, said "We are proud that our strong balance sheet has allowed us to return approximately $120 million of cash to shareholders year-to-date. Our teams continue to execute on our multi-year growth plan, driving sales and expanding margins through disciplined pricing and expense management. As a result, we are raising our full year sales, margin and EPS guidance ranges."