Shares of Terex Corporation TEX have dipped 4% as it lowered its 2024 guidance for sales and earnings per share. TEX cited lower sales volumes in both segments as the primary reason for the downgrade. In this scenario, it will continue lowering its cost structure and adjusting production to the weak demand.
Despite these challenges, Terex confirmed that the long-term outlook remains intact. It also added that it expects to close the ESG acquisition in the fourth quarter of 2024.
Segment-Specific Challenges to Hurt TEX’s Sales & Earnings in 2024
Terex’s Aerial Work Platforms segment’s sales have been impacted with customers adjusting their fleet to align with seasonal rental demand. The Material Processing (MP) segment has also been seeing lower sales as dealers lowered inventory levels. End-user demand has been muted as consumers remain cautious about the macro environment. Weak demand in Europe has also been weighing on volumes.
Terex expects sales to range between $4.85 billion and $5.05 billion in 2024, lower than the earlier stated range of $5.1-$5.3 billion. The midpoint of the revised guidance implies a year-over-year decline of 3.9%.
Terex also lowered adjusted earnings per share expectations to the range of $5.80-$6.20 compared with the previous range of $7.15-$7.45. The trimmed guidance indicates a 15% decline from adjusted earnings of $7.06 per share reported in 2023.
The guided ranges, however, do not include the benefits of the ESG acquisition.
Terex’s ESG Acquisition Set to Close in Early Q4
Terex expects to close the ESG acquisition early in the fourth quarter of 2024. ESG is expected to generate approximately $45 million of adjusted EBITDA in the fourth quarter.
On July 22, 2024, TEX and Dover Corporation DOV had inked the deal, per which Terex would acquire Dover’s ESG Group in a $2 billion all-cash transaction. Adjusted for the present value of expected tax benefits of approximately $275 million, the purchase price is $1.725 billion.
The addition of ESG will strengthen Terex's portfolio and cater to the growing waste, recycling and utility end markets that are expected to benefit from electrification, circularity and energy transition trends.
The addition of ESG will boost Terex’s earnings by a double-digit percentage in 2025, with further gains expected thereafter. Around $25 million of identified synergies are expected by the end of 2026. These will stem from procurement, supply-chain efficiencies and commercial initiatives.
Also, ESG's efficient operating model, combined with low net working capital, will improve Terex’s free cash flows.
TEX Stock’s Price Performance
Terex's shares have lost 5.3% over the past year against the industry’s 27.3% growth.
Image Source: Zacks Investment Research
TEX’s Zacks Rank & Stocks to Consider
Terex currently carries a Zacks Rank #3 (Hold).
Some better-ranked companies from the Industrial Products sector are Crane Company CR and Flowserve Corporation FLS, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crane’s 2024 earnings is pegged at $5.07 per share. The consensus estimate for earnings has moved 6% north in the past 60 days. The company has a trailing four-quarter average earnings surprise of 11.2%. CR’s shares have gained 80% in a year.
Flowserve has an average trailing four-quarter earnings surprise of 18.2%. The Zacks Consensus Estimate for FLS’ 2024 earnings is pinned at $2.76 per share, which indicates year-over-year growth of 31.6%. The consensus estimate for earnings has moved 4% north in the past 60 days. The company’s shares have gained 24.5% in a year.
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