Terex (TEX)

Lifting and material handling equipment company Terex (NYSE:TEX) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 4.9% year on year to $1.23 billion. On the other hand, the company’s full-year revenue guidance of $5.4 billion at the midpoint came in 2.2% above analysts’ estimates. Its GAAP profit of $0.31 per share was 29.7% below analysts’ consensus estimates.

Company Overview

With humble beginnings as a dump truck company, Terex (NYSE:TEX) today manufactures lifting and material handling equipment designed to move and hoist heavy goods and materials.

Automation that increases efficiencies and connected equipment that collects analyzable data have been trending, creating new sales opportunities for construction machinery companies. On the other hand, construction machinery companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the commercial and residential construction that drives demand for these companies’ offerings.

Companies competing against Terex include Caterpillar (NYSE:CAT), Komatsu (TYO:6201), and private company Liebherr Group.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Terex’s 4.6% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Terex’s annualized revenue growth of 4.3% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Terex missed Wall Street’s estimates and reported a rather uninspiring 4.9% year-on-year revenue decline, generating $1.23 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Terex has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 20.4% gross margin over the last five years. That means Terex paid its suppliers a lot of money ($79.57 for every $100 in revenue) to run its business.

Terex produced a 18.7% gross profit margin in Q1, down 4.3 percentage points year on year. Terex’s full-year margin has also been trending down over the past 12 months, decreasing by 3.2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Terex has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.3%, higher than the broader industrials sector.

Looking at the trend in its profitability, Terex’s operating margin rose by 4.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Terex generated an operating profit margin of 5.6%, down 6.6 percentage points year on year. Since Terex’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Terex’s EPS grew at an astounding 24% compounded annual growth rate over the last five years, higher than its 4.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Terex’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Terex’s operating margin declined this quarter but expanded by 4.2 percentage points over the last five years. Its share count also shrank by 5.1%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Terex, its two-year annual EPS declines of 16.4% mark a reversal from its (seemingly) healthy five-year trend. We hope Terex can return to earnings growth in the future.

In Q1, Terex reported EPS at $0.31, down from $1.60 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Terex’s full-year EPS of $3.67 to grow 22.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Terex has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.7%, subpar for an industrials business.

Taking a step back, we can see that Terex’s margin dropped by 6.1 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Terex burned through $57 million of cash in Q1, equivalent to a negative 4.6% margin. The company’s cash burn was similar to its $68.9 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Terex hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 20.1%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Terex’s ROIC has increased significantly. This is a good sign, and we hope the company can keep improving.

Terex reported $298 million of cash and $2.59 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $600.6 million of EBITDA over the last 12 months, we view Terex’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $23.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Terex blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. On the other hand, its revenue fell slightly short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 5.8% to $38.45 immediately after reporting.

Updated: May 22, 2025 at 10:51 PM EDT

Before making an investment decision, investors should account for Terex’s business fundamentals and valuation in addition to what happened in the latest quarter.

Terex’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was uninspiring over the last five years. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its cash profitability fell over the last five years. On top of that, its organic revenue growth has disappointed.

Terex’s P/E ratio based on the next 12 months is 9.4x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $47.95 on the company (compared to the current share price of $45.84).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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