A Cool $20 Mil to PPPs
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The U.S. has agreed to direct some $20 million across nearly a dozen states to finance diverse manufacturing projects structured as public-private partnerships (PPPs). The funding places a stamp of approval on PPPs, in which public departments and private businesses come together to finance as well as to share in the risk and rewards of long-term endeavors. PPPs are common in the infrastructure sector, a sector that in the U.S. needs upwards of $1 trillion for an overhaul. Each of the 10 winning states will receive $2 million for select manufacturing projects.
The cash injection benefits construction activity from California to New York, creates jobs and encourages the often complex partnerships between public and private entities. The award will encourage building and manufacturing activity across the U.S., which could provide a boost to a sector that has been skittish about economic conditions worldwide.
Take Illinois Tool Works (NYSE: ITW). The company's operations include transportation, power systems/electronics and industrial packaging. It is active in the construction and transportation sectors, and has contributed to the renewable energy sector, where it provides the polymers and fluids to help power sources such as wind farms. Based in Glenview, Illinois, this company generates more than 50 percent of its revenues from overseas, a trend that has persisted since at least 2009, according to the company's most recent 10-K filing, and which has contributed to slowing demand for its products.
In the most recent 8-K filing, Illinois Tool used some variation on the word "weakness" 10 times. That softness is primarily tied to the Euro as well as in Asia Pacific, stemming primarily from China amid weak "welding demand" and offset somewhat by better performance out of India.
Indeed, it was sales that weighed on Illinois Tool Work's third quarter. While net income improved over last year, revenues languished, falling 1.7 percent over the same period last year.
Illinois Tool Works has been a dependable dividend paying stock, and reported cash-flow worth $545 million in the 3Q and $1.2 billion year-to-date. Nonetheless, given its broad exposure to the international markets, the distribution is something to keep an eye on. Shares are up 25 percent year-to-date.
Peoria, Illinois-based Caterpillar (NYSE: CAT) delivered on its top and bottom lines in 3Q, but those results were tainted by a grim outlook for the rest of the year. The manufacturing giant grew its revenues by 5 percent versus year ago levels to $16.4 billion and increased EPS nearly 50 percent to $2.54 per share including tax benefits. Caterpillar lowered its sales and revenue forecast for 2012 and expects that weakness to continue, at least through the first half of 2013.
Caterpillar is taking a 'hope for the best, prepare for the worst' approach in its economic outlook for 2013, stressing that it is not predicting a global recession but adding that whatever the global economy dishes it will be prepared to take. Nonetheless, Caterpillar has paid its quarterly dividend faithfully since before the Great Depression, and doesn't appear to be letting the most recent economic slowdown interrupt those distributions, either. Its machinery and power systems' cash flow was close to $1 billion in the 3Q, which still fell below the $2 billion reported in the year ago quarter amid changes to accounts payable.
Another way to play the PPP push is to invest in pure infrastructure plays, such as Macquarie Infrastructure Company (NYSE: MIC). Macquarie Infra, a subsidiary of the larger financial institution Macquarie Group, invests in and operates U.S. infrastructure assets across sectors such as transportation and energy.
The company reports its 3Q results on November 1. Macquarie Infra has not offered any financial guidance for the upcoming quarter, but in its 2Q it increased its quarterly dividend payout from $0.20 to $0.62 per share. It is in the midst of an unsettled discrepancy surrounding the distribution of cash with partner International Matex Tank Terminals, in which Macquarie holds a 50 percent stake. In its 2Q, Macquarie noted that future increases in its own dividend payout are in part contingent on the outcome of this disagreement.
The cash commitments made by the U.S. government to PPPs are not limited to infrastructure. They still, however, encourage job growth, and participation between the public and private sectors, which is needed to upgrade the nation's energy and transportation infrastructure.
Fool blogger Gerelyn Terzo does not own shares in any of the companies mentioned in this entry. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Illinois Tool Works. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
