Terex Partners with Sinomach - Analyst Blog

By Zacks Equity Research,

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Terex Corporation ( TEX ) has inked an agreement with China-based Sinomach Heavy Industry Corporation to make the latter a strategic partner for its troubled crane business, Sichuan Changjiang Engineering Crane Co. (SCE Crane). Under the deal, Sinomach will own more than 50% of SCE Crane and Terex will offer its overseas distribution and support channels as well as engineering capabilities for the business.

Sinomach is a wholly-owned subsidiary of China Machinery Industry Corporation. The company specializes in restructuring and integrating engineering machinery business resources. It has joint ventures with companies including Hyundai Corporation, Komatsu Ltd. ( KMTUY ) and Martec.

Earlier in 2006, Terex had acquired about 50% interest of Sichuan Changjiang Engineering Crane Co., Ltd. Terex was the first foreign company to acquire a Chinese crane company at that time. The company intended to capture the wide customer base in the emerging market of China. The senior management of SCE Crane owns the remaining 50% interest in the company.

However, in July 2011, Terex had announced to undergo restructuring activities in the Cranes segment in 2012 when the company saw operating losses of $56.5 million during the second quarter of fiscal 2011. Terex had revealed that it expects the restructuring activities to generate annual benefits of nearly $70 million in 2012, which will improve the segment's profitability.

In 2010, Terex made two strategic acquisitions in China. The company got hold of around 65% ownership of Shandong Topower Heavy Machinery Company located in Jinan, China.

In addition, the company has formed a mobile materials processing and equipment manufacturing joint venture with Quanzhou, China-basedFujian South Highway Machinery Companyby acquiring a 60% ownership in the latter. These acquisitions were made to complement Terex's long-term strategy of expanding its footprint in the country.

In August 2011, Terex acquired Demag Cranes, which helped the company add industrial cranes and hoists of Demag to its product portfolio. The combined manufacturing entity will help Terex capturing the growing demand for cranes in China. Furthermore, a substantial improvement in demand in the emerging markets could offset the weaknesses faced by the company in the European markets.

Terex reported fourth 2011 quarter adjusted earnings of 26 cents per share, up 30% from the prior-year quarter and ahead of the Zacks Consensus Estimate by a penny. Net sales increased 47% to $1.96 billion surpassing the Zacks Consensus Estimate of $1.90 billion.

Terex expects operating margin to be in the range of 5%-6% for fiscal 2012 in the Crane's segment, which generated nearly 31% of total revenue in fiscal 2011. Price increases and restructuring activities in this segment are expected to aid margins.

Terex Corporation is a global equipment manufacturer catering to the construction, infrastructure, and surface mining industries. The company's manufacturing facilities are located in the U.S., Canada, Europe, Australia, Asia, and South America. The company sells its products through a worldwide distribution network. It competes with the likes of Caterpillar Inc. ( CAT ), Deere & Company ( DE ) and Komatsu Ltd.

Currently, the shares of Terex retain a Zacks #2 Rank, which translates to a short-term rating of Buy. However, we have a Neutral recommendation on the shares of the company for the long-term.

CATERPILLAR INC ( CAT ): Free Stock Analysis Report
DEERE & CO ( DE ): Free Stock Analysis Report
TEREX CORP ( TEX ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CAT , DE , TEX

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