Terex Earnings: Strong Demand and Improved Supply Chains Push Management To Raise 2023 Guidance

The key takeaway coming out of Terex’s TEX second-quarter earnings was the company’s confidence in near-term demand. Management raised 2023 guidance for both sales and margins. Sales guidance came in above the top end of previous estimates for aerial work platforms and at the top end for materials processing. The biggest surprise was operating margin guidance. At the consolidated level, the company is now expecting operating margins in 2023 to land near 13%, up from 11.4%-11.8% previously. A lot of that is being driven by the aerial work platform segment, where operating margin guidance was raised to 13.8% from 11.5% in the first quarter. Terex’s guidance led us to raise our fair value estimate to $51 from $48.50 previously. We’re now expecting strong sales and margin performance in 2023.

Turning to segment performance, materials processing increased 20% year on year, while operating margins expanded 50 basis points compared with the year-ago period. In addition, the segment’s backlog increased 15% year on year, now sitting at 2.5 times historical norms, according to management. We think this is a testament to Terex’s exposure to attractive tailwinds, such as increased U.S. infrastructure spending, urbanization, and clean energy projects.

In aerial work platforms, sales increased 38% year on year, thanks to improved supply chains. Supply headwinds have yet to completely dissipate, but the company has seen gradual improvement over the past few quarters. On top of that, equipment fleet ages are elevated, meaning there will be consistent demand through the end of this year and into next year. Operating margins expanded 850 basis points, largely due to supply improvements. The company also performed well on the cost side, through greater manufacturing efficiencies and cost-reduction initiatives.

Overall, Terex is positioned well for the near term, but we continue to view shares as overvalued, by about 25%.