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Terex completes buy, copes with slowdown

Friday, 7 August 2009 ( #422 ) - Westport, CT, United States
Terex CEO Ron DeFeo
Terex CEO Ron DeFeo
Terex Corp has completed its acquisition of the port equipment businesses of Fantuzzi Industries sarl and reported its second-quarter sales fell by 55% from 2008's comparable quarter. In the acquisition for USD220 million (EUR155 million), Terex gets the Fantuzzi and Noell lines for incorporation with the Terex crane business segment. Products include Noell-branded straddle carriers, both Fantuzzi- and Noell-branded rail and rubber-tyred gantry cranes, mobile harbour cranes, ship-to-shore cranes, and reach stackers and forklift trucks. Fantuzzi is based in Lentigione, Italy. In preparation for the transaction, Terex and JP Morgan Chase International Financing Ltd agreed on 22 July on an incremental term loan assumption, and Terex reached an agreement on 23 July with certain of Fantuzzi's Italian lenders. Diversified equipment manufacturer Terex is borrowing USD66 million from JP Morgan and USD48 million from the Italian banks. In a 23 July security analysts' conference call, Terex executives discussed results for the second quarter ended 30 June. Sales in the crane segment declined 41% to USD491.0 million from USD833.8 in the previous corresponding quarter, but a bigger drop occurred in the aerial work platform segment. Terex has other segments in the construction and materials processing/mining businesses. Quarterly sales in the aerial work platforms segment decreased 72.2% to USD209.9 million versus USD755.4 million in the comparable 2008 quarter. Terex says demand for aerial work platforms "has exhibited signs of stability during the last six months, although at low levels. Due to continuing economic uncertainty, customers are ordering equipment when needed, rather than planning purchases in advance as they did in prior periods, resulting in minimal levels of backlog." Rental customers continue to age and reduce their fleets, and "as a result, are deferring the purchase of new aerial and telehandler products", Terex reports. "The core markets for aerials in North America and Europe remain at very depressed levels. The utility business is continuing to see similar levels of order inquiries when compared with the comparable period in 2008." In aerial work platforms, "we sold about USD215 million more of equipment than we manufactured in the first six months of this year", notes Ron DeFeo, Terex chairman and chief executive officer. "This was good for inventory reduction but certainly not for earnings. Once inventory returns to a more balanced position, then earnings will improve." The economic crisis impacted the aerial work platform business first "and it's been hit the hardest", according to Tom Riordan, Terex president and chief operating officer. Segment reductions exceed 40% in headcount and approximately 59% in manufacturing expenditures. "We have remained focused on our customers in meeting their needs, making sure we take quick action to reduce capacity and not add to the oversupply position in the channel," Riordan reports. Aerial work platforms "is a business that has the potential to come back and come back quickly, but predicting when it comes back is impossible at this moment in time," DeFeo says. Tim Ford, president of Terex aerial work platforms, notes, "We are running our factories at around halftime at this stage" and seeing some material cost reductions, but "we don't have enough volume to run it through the factory as we are trying to manage the business for cash." Ford reports rental companies in both the US and Europe began ageing their aerial work platform fleets about one year ago and have reduced those fleets between 5% and 10%. DeFeo indicates Terex is cautious about acquisitions but aims to "get Fantuzzi done correctly" through "a complete game plan" for its integration within the corporation.
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