Fourth Quarter and Year End 2012 Earnings Release Conference Call
Ron DeFeo - Terex Corporation - Chairman and Chief Executive Officer
Good morning ladies and gentlemen and thank you for your interest in Terex Corporation today. On the call with me this morning is Phil Widman, Senior Vice President and Chief Financial Officer. This will be Phil's last conference call for Terex which, as you know, is due to his planned retirement. We thank Phil for his more than ten years of service to Terex and its investors. Kevin Bradley, our incoming CFO is also participating. As you know, Kevin was recently the President of Terex Cranes. Also on the call is Tom Gelston, Vice President, Investor Relations. Also participating on the call and available for your questions is the Terex leadership team, including our business segment presidents and geographic representation from developing markets.
As usual, a replay of this call will be archived on the Terex website, www.terex.com, under Audio Archives in the Investor Relations section. I will begin with some overall commentary and highlights. Phil will follow with a more detailed financial report and then I will give some summary comments before we open it up to your questions. I would like to request that you ask one question and no more than follow-up in order to give everyone a chance to participate.
For this call we prepared a presentation which will guide our commentary. This is available on our website. Let me begin by referring to the forward-looking statement on page 2. Please review this statement as we will be discussing forward-looking information and non-GAAP measures relative to Terex's performance.
I will begin on page 3. Where are we and where are we headed? First to reflect upon 2012, we set some specific goals for execution in 2012 and we think we made excellent progress. In the area of margin improvement, on an adjusted basis, we achieved a 340 basis point improvement in operating margin, basically doubling from last year. Next in cash generation, we generated approximately $554 million in free cash flow, and from an adjusted earnings per share performance perspective, we achieved $1.83 per share compared with year ago adjusted earnings per share (EPS) of $0.46. In a few minutes, Phil will detail the differences between our adjusted and reported numbers. During the year, we meaningfully de-levered the Company and took some strategic actions to position us for a better 2013 and beyond. That's one of the reasons why we are optimistic overall about our business and our segment performance in 2013 that we will detail. Our outlook for this year will be for earnings per share of between $2.40 to $2.70 (excluding restructuring and unusual items) on net sales of between $7.9 billion and $8.3 billion. We are targeting free cash flow of more than $500 million and we expect to focus on further debt reduction as the year progresses. We are also communicating 2015 goals, which are goals, not guidance, as we have established these goals internally and believe it is appropriate to communicate them externally. We believe the Company can achieve net sales of approximately $10 billion, earnings per share of $5.00 plus, and a return on invested capital of at least 15% in 2015. We are not anticipating significant acquisitions, as our focus is on operational improvement.
Turning to page 4, our fourth quarter results reflected the slower economic environment that was evident in our reduced backlog at the end of the third quarter. We had an adjusted fourth quarter EPS of $0.19, but our margin improvements were key to staying positive. We had an adjusted operating margin of 4.5% compared with 3.8% in the 2011 fourth quarter. We continued to realize better pricing as well as making cost reduction progress. The interesting point here is that, despite about a $260 million decline in net sales, our gross profit in absolute dollars remained unchanged. We were not happy with the net sales decline, which we believe was mostly market based, except in Cranes, where we likely traded some share for profit improvement. This represents a better operating profile in our view, as now we are in a stronger position to capture growth at better margins. And if you reflect on the year in total, we started 2012 with a stronger economic environment and we ended it with a slightly weaker environment, but our operating performance continued to progress. This is highlighted by the free cash flow performance in the fourth quarter of $140 million. From a segment perspective, most performed as expected. Aerial Work Platforms (AWP), Cranes and Materials Processing (MP) delivered strong operating performance with improved margins despite some net sales softness in Cranes and MP. And at AWP, we were out of the telehandler business for most of the fourth quarter because we were doing a product changeover at our Moses Lake facility.
The Material Handling & Port Solutions (MHPS) and Construction segments underperformed. In the MHPS segment we had a net sales decrease of 15% with the majority of it coming from our Port Equipment business, but our European based Material Handling business also showed some significant softness. This puts further pressure on the integration efforts, which are on track, but now need to increase as our costs are likely too high for the net sales at this point in time. And lastly, the Construction business remains a work in progress as we are exiting underperforming businesses as a top priority, as well as continuing to lower our costs and finding new ways to build our business through alliances.
I will come back and summarize, but now I would like to turn it over to Phil who will review the quarter and annual performance as he has for these past ten plus years.
The following information was filed by Terex Corp (TEX) on Thursday, February 21, 2013 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.