Terex, famous for their mini diggers for sale, come out of the recession under CFO's auspices

In 2002, Phillip Widman accepted the role of Chief Financial Officer at Terex Corp., the construction equipment manufacturer who are well known for their brand of mini diggers for sale. The company was undergoing a period of rapid expansion, and marshalling this was one of Widman's key responsibilities, and also one his most challenging. Terex, who aside from mini diggers also manufacture a range of heavy equipment and cranes, were, at that time, ploughing through acquisitions, with 11 company purchases taking place between 2002 and 2007. In the same time period, operating profit increased 12-fold and sales increased by 300 percent. However, 2008 saw the global economic recession hit, and Terex, like many companies, suffered greatly, with orders vanishing into thin air, and sales for all product lines dropping by huge margins, sometimes by up to 80 percent. Or, as Widman succinctly put it, during an interview at the firm's Connecticut headquarters, We hit the wall.The recession bit so virulently, that by the beginning of 2009 Terex was haemorrhaging money. Widman was forced, like hundreds of others like him across the world, to confront the fact that they were now operating in an entirely different economic reality. As a result, his job became focussed upon devising cost cutting measures, in order to stabilise the company's finances. As Widman commented, You take all the actions you need to do to stop the bleeding.
This involved making tough decisions, and Terex were forced to close or merge many of their manufacturing plants, cut the hours of work that members of staff undertook at the factories, and freeze much of their spending. Widman said, You’re down to cutting at the bone sometimes. You’ve just got to be very careful about going too far.

Other measures included laying off 30 percent of the work force, and instituting a 10 percent salary cut for all remaining employees, right up to corporate management.

2009 continued to go badly for Terex, with their falling sales putting them at a real risk of violating certain conditions of their bank loans. Widman was forced to agree amendments with their creditors, which bought the company time from having to meet debt payments saying, We needed some escape valves.

In mid-2009, Widman and Ron DeFeo, the chief executive officer of Terex, made the decision to take advantage of the nascent recovery of the stock exchange, and sold stock and bonds worth $600 million, using the money to both pay back debts owed to the banks, and to give themselves the manoeuvrability of cash liquidity. Widman said, You do it when you can, as opposed to when it’s too late and you can’t get the money.

They then sold the arm of the company which makes mining equipment to Bucyrus International Inc. for $1.3 billion, comprised of $0.3 billion Bucyrus shares, and $1 billion in cash. The Bucyrus shares were given on condition that Terex would keep them for at least 12 months, so Widman purchased derivatives which were linked to a variety of shares in companies similar to Bucyrus, in order to ameliorate the risk of a drop in Bucyrus share prices. Widman said:

Their volatility is very high, so we had to look at how we could potentially hedge that risk.

Widman also decided to utilise bundles of derivatives to counter the risk of fluctuating exchange rates affecting foreign-generated revenue. Widman said:

We’re trying to maintain a buffer or a smoothing. I’m not going to take a position that’s really dramatic.

These measures saw Terex enter the middle of 2010 with significantly more cash available than had been the case one year earlier, with $1.5 billion available, and a further $500 million from a credit facility. This money, Widman says, could be used to begin a new campaign of acquisitions, We’re an acquisitive company, and if somebody else can’t survive, we could potentially take advantage of that. We don’t necessarily want to buy very troubled businesses, but good businesses in troubled situations.


As of the interview, no concrete target for an acquisition has been identified, with sellers, who are also still recovering from the debilitating effects of the recession, asking for too much money, with Widman saying, There are a lot of natural combinations that should occur, but the industry hasn’t consolidated very much.

However, Terex's fortunes are recovering, with sales rising once more, and this has allowed the working week at the factories to be re-extended, and salary cuts to be rectified, with Widman saying, We’re producing at a lot higher levels than last year.

The figures from 2009 saw Terex spending $100 million per month on materials, down from $300 million per month in the pre-recession days of 2008. 2010 has seen them rise back to a level of $200 million per month.

Widman predicts that Terex should be able to meet their target of posting a per share profit by the end of 2010, with $4.5 billion worth of sales for the year. He also said that 2013 should see Terex have doubled its revenue, without any new acquisitions. He said:

We think we can taste it, but it’s not going to be as easy as it might have been two or three years ago.

This is partially because Widman is targeting sales growth in new areas. The US and Europe are no longer the be-all and end-all of markets, with countries such as Brazil, China and India increasing in importance month by month. Widman said:

The developed parts of the world are not going to grow as much. In terms of where we see spending, certainly China’s at the top of the list for the next decade or two.

Consequently, Terex is working to significantly expand their operations throughout all three of those countries. Whilst potentially lucrative, there are a labyrinth of new challenges, involving local practices, laws and intellectual property legislation. Widman said:

We’ve made some mistakes.

An example is the sale of an excavator, designed in Germany, to a Chinese firm. In China, the vehicle was utilised virtually non-stop, 7 days a week, whilst it had been designed under the assumption that it would work for 40 hours per week, So you need a different ruggedness, concluded Widman.

Widman was born in Detroit, Michigan, and went on to achieve a Masters degree in Business Administration, awarded by Eastern Michigan University. He worked for Unisys Corp. for more than a decade, before moving to ABB Asea Brown Boveri Ltd, becoming the Chief Financial Officer. He then moved to Philip Services Corp. as Chief Financial Officer, and orchestrated the restructuring of their debt, saying, I liked it from an experience standpoint; it was hell going through. He accepted a position as Chief Financial Officer with Terex in 2002, consolidating the company during a period which, not only did the recession hit, but Terex's make-up was fractured and de-centralised. Widman said:

I had to build the whole finance organization. We didn’t have information technology; it was whatever the guys at the local businesses had.

JCB hits 100,000 excavators in India

JCB is one of largest construction equipment manufacturers in the world, producing backhoe loaders, excavators, compactors, skid steer loaders and mini diggers for sale across the world. In fact JCB India has reached landmark by recently producing the 100,000 excavator that they have manufactured in India.

The milestone vehicle was unveiled by visiting dignitaries, including: Kamal Nath, the Minister for Road Transport and Highways; Vince Cable, the British Secretary of State for Business and Vipin Sondhi, the chief executive officer of JCB India Ltd. Kamal Nath stressed that India's vast infrastructural road-building project required them to maximise their use of the latest technological innovations, and that JCB were an important part of that, bringing cutting edge construction technology into the country.

Vince Cable stated that JCB had built a worldwide network from their original location in the UK, and was committed to creating jobs in many countries. He also said that considering India's modernising projects, there was plenty of scope for further collaboration.

Vipin Sondhi expressed his delight that JCB's factory in Ballabhgarh was now the largest backhoe loader manufacturing facility in the world, and commented that JCB had a market share of more than 50 percent in India. JCB is looking to meet demand by eventually manufacturing a full range of equipment in India, including wheel loaders and compactors. The company is constantly investing in its Indian facility, especially the plants in Ballabhgarh and Pune, in order to be able to meet the constantly growing need for equipment.

Komatsu invest in Chinese market

The surge in demand for construction equipment in Indonesia and China has led Komatsu, one of the giants of the industry, to announce plans to double their production.

Despite projections being released in April, Executive Officer Masahiro Uegaki said in a Tokyo interview that the actual figures will exceed those projections by 60 percent. Last year saw 44,000 machines for the construction and mining industries produced by Komatsu; the end of this year will see approximately 85,000.

Komatsu's rivalry with Caterpillar means that they are counting on the US and Asian markets to grow this year. Despite China's demand for equipment, it saw a rapid decline in growth in 2008, and Yasuhiro Matsumoto, an analyst at Shinsei Securities Co. in Tokyo warns that, Komatsu faces the risk of a further slowdown in the Chinese economy, which would lead to a drop in its stock price. However, long term growth in the Chinese market, which is expected, will benefit Komatsu.

Both Komatsu and Caterpillar, great rivals and manufacturers of excavators, saw their share prices dip this, with Komatsu's falling 2 percent, and Caterpillar's falling by 0.3 percent. Komatsu have clearly targeted China as the market with the most potential, setting up a specific buying department for China, and sending a more than 20-strong delegation of executives to the country, as they vied with Hitachi, the Japanese construction equipment firm, and Sany Heavy Industry, an indigenous company, for business. At present, Komatsu is the leading supplier of excavators and other construction equipment to China, and it means to retain that share.

China is the world's most rapidly expanding economy, and also one of the largest, with Uegaki saying, China’s strength is outstanding. Indonesia is also strong, the markets for the country’s mining, agriculture, forestry and construction sectors are all good.

Komatsu combines Japanese and local produce in their excavators, with Japanese steel used to make the high-pressure tubes, and local steel for the booms and exterior shells. They have exceeded their projections, with an net income of 52 billion yen in the last two quarters, after a prediction 37 billion yen. The huge infrastructural projects in China, such as railways, roads and mining, mean that it now accounts for 19 percent of Komatsu' sales.

New excavator factory in Brazil for JCB

JCB's commitment to the global manufacture of excavators has been further underwritten by the opening of a new factory in Brazil, which has just produced its inaugural vehicle; a 20-ton tracked excavator. The JS200LC is now in the possession of Sao Paulo construction firm Jorcal Engenharia E Construções S/A, with the owner Renato Rédis stating that he is extremely pleased with his acquisition. The new factory is adjacent to JCB's backhoe loader factory in Sorocaba, and produced the first Brazilian-made tracked excavator; a model twice the size of a mini digger. JCB have also recently opened a new factory in the UK, in Uttoxeter. The opening of the Sorocaba excavator plant was marked by a ceremony attended by JCB's chief corporate development officer, David Bell, the regional director, Carlos Hernandez, and Vitor Lippi, Sorocaba's mayor. Hernandez said, The Latin American region is undergoing strong growth this year and our decision to constantly invest in the expansion of production capability will help us achieve our objective of maintaining business growth and increasing our market share in the region.

The factory was built in a mere seven months, and is replete with a training centre, in order to maximise the after-sales service for customers in Brazil.

Tough task ahead for new Caterpillar Inc. CEO

The earnings per share targets inherited by Caterpillar Inc.'s new CEO Doug Oberhelman are unlikely to met, according to analysts of the financial markets. The 2012 target, which Oberhelman was bequeathed by his predecessor Jim Owens, is for earnings to be between $8 and $10 per share. Analysts who have been studying Caterpillar's figures have predicted an average earning of $6.08 per share, which is 32 percent less than the target.

The demand within the construction equipment market is once again growing, after the recession, and Caterpillar, as the largest manufacturer of such equipment in the world, as demonstrated by the ubiquity of the Caterpillar excavator, has announced a $1.5 billion investment in order to raise the level of output and meet the demands. Investors in the company are worried that there may be a repeat of the previous period of sales growth, when Caterpillar, famous for its diggers for sale, managed to fail to show a significant profit.

Of all the industrial companies in the USA, Caterpillar Inc. is the second largest debtor, after General Electric Co., and as such is watched carefully by Joel Levington, one of the Managing Directors of Corporate Credit at New York's Brookfield Investment Management Co. Levington says, Show me that you can improve your inventory management, manage your raw-material inflation and show me you can expand operating margins. You need more than just revenue growth.

The second quarter results are due to be announced by Caterpillar, and as yet, Caterpillar have refused to comment on speculation regarding their earnings per share.

Andrew Casey, an analyst for Boston's Wells Fargo, observed, If the company produces higher-than-anticipated earnings in the short term as we expect, investors may begin to place a higher probability on Caterpillar’s ability to achieve its longer-term revenue and earnings targets.

Whilst sales have have grown steadily, with data compiled by Jefferies and Co. showing that a 24 percent increase between 2006 and 2008, Caterpillar's profit margins plateaued, as they paid more to suppliers in order to speed up their acquisition of parts, and the price of raw materials rose. Demand for Caterpillar products rose throughout 2007/2008, but as they increased production to meet those demands, so did their expenditure. Mark Demos, a portfolio manager for Fifth Third Asset Management Inc., which, as part of the $17.8 billion under their management, holds an interest in Caterpillar to the tune of 125,379 shares, said, They tried to produce too much in too little time.

In terms of their competitors, Komatsu Ltd., the Japanese firm, increased both earnings and revenue between 2006-2008, by 83 percent and 39 percent respectively. Deere and Co., makers of John Deere tractors, also saw a 2006-2008 increase in profit, by 21 percent, and sales, by 30 percent. However, Caterpillar have climbed this year on the Dow Jones, after gaining 17 percent; Deere and Co. also climbed, by 12 percent, whilst Komatsu dropped by 11 percent. Caterpillar's nascent resurgence can be attributed to measures taken in the last two years, particularly improving production capacity, and streamlining both its supplier base, and its methods of purchasing raw materials. Robert Wertheimer, an analyst with Morgan Stanley, commented, A lot of ground work has been laid. What the company needs to do is execute.

However therre are risks inherent within the recovery. Almoost two thirds of Caterpillar's revenue in the first quarter of the year came form outside the US and Canada. The International Monetary Fund has forecast that global growth will be in excess of earlier projections, but also issued warnings that the economic problems of Europe could still affect the capital which is being pumped into the emerging markets, particularly of Asia. Jeff Windau, an analyst for Edward Jones and Co., said, We need to a have a really strong economic recovery” for Caterpillar to hit its 2012 earnings target. It’s an aggressive goal.

However, Ann Duignan, an analyst at JPMorgan Chase and Co. in New York, thinks otherwise, commenting that earnings of $8 per share, may not be as big a stretch as some believe, before predicting earnings of $8.69 per share. We believe the market is overlooking what could turn out to be the beginning of the next multi-year construction cycle in the U.S, she commented.

Doug Oberhelman earned a degree in finance from the Millikin University in Illinois in 1975, and began working for Caterpillar in the same year. From 1998 until 2001 he was the vice president of the engine unit, and under his stewardship, the engine unit increased its profitability. He now has a big job on his hands, after taking over form Jim Owens as CEO. Eli Lustgarten, an analyst for Longbow Research, offers this comparison, Owens tends to be more cerebral. Oberhelman will be more focused on operations and improving profit.