Terex charge wipes out Q4 profits, covenants threatened

12 February 2009

Terex booked a US$ 460 million impairment charge in the fourth quarter of last year, giving it an operating loss of -US$ 392 million for the three months. Net sales for the quarter were US$ 2.08 billion, down -20% on the same period in 2007.

The charge in the fourth quarter, which related to write-downs of goodwill in the company's construction, road building and utility products businesses, took the company's net profit for the full year down to just US$ 72 million, a near -90% fall on the figure of US$ 614 million seen in 2007. Sales in 2008 were up +8% on 2007 at US$ 9.89 billion.

Terex has also said it is likely to breach its credit covenants by the end of the first quarter. It is in discussions with its banks to renogtiate credit terms. A statement said, "Should the company not be able to obtain such consent or amendment, there could be adverse consequenses to the company's liquidity."

Commenting on the events of 2008 chairman and CEO Ron DeFeo said, "The past year has been like no other - the first half of the year exhibited robust growth and expansion, while the second half of the year was severely impacted by the global credit crisis and economic deterioration, which drove significant declines in customer demand in out businesses."

The biggest fall in sales in the fourth quarter was at Terex's aerial work platform business, Genie, where sales nearly halved from US$ 586 million in the final quarter of 2007 to US$ 301 million in the last three months of 2008. Sales for its construction division were down -37% to US$ 344 million in the final quarter, while its materials processing and mining equipment sales fell -16% to US$ 549 million.

On the positive side, sales of Terex's cranes were up +10% in the fourth quarter, compared to the same period in 2007, to US$ 729 million.. There was a more moderate increase of +2% for its road building and utility products business, with revenues coming in at US$ 182 million.

2009 uncertainty

With regards to its outlook, Terex has taken the unusual step of not providing any profit guidance for this year. It says it expects sales to be down -30% to -35% on 2008 levels, which is to say US$ 6.43 billion to US$ 6.92 billion.

However, on the subject of profits, Mr DeFeo said, "Given the uncertainty and volatility in today's environment, we are not providing earnings guidance until we have better visibility. However, we will continue to take aggressive actions to reduce operating costs and improve our cash flow."

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