3 Machinery Companies that You Must Buy as the Economy Improves
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Global economic recovery provides better future prospects for the machinery industry. According to the IMF, the world economy is expected to grow at a rate of 3.3% in 2013 and 4% in 2014. With this growth, the U.S. machinery industry is projected to grow at 1.9% this year and 3% in 2014. I have analyzed three machinery companies in this article, looking at their growth prospects for the long term.
New crane orders and Joint venture
The Manitowoc Company’s (NYSE: MTW) crane segment reported net sales of $547.4 million in the first quarter of 2013, up 7.8% year-over-year. The sales were mainly driven by continuous growth in the American market and the rising demand in the emerging markets. This segment’s growth prospects remain positive in North America.
ALL Erection and Crane Rental, the largest mobile and crawler crane rental operator in North America, placed orders for 10 new crawlers in March 2013. This was the largest crawler order for Manitowoc after the financial crisis in the U.S. ALL Erection also recently ordered 20 grove rough terrain cranes in addition to the 10 crawlers. The overall benefit to the company from the above orders will range between $30 million and $40 million.
On Jan. 29, 2013 Manitowoc entered into a joint venture with Shantui Construction Machinery, a Chinese construction equipment maker company for building mobile cranes. The joint venture will operate under the name Shantui Manitowoc Crane. In the newly formed entity, Shantui and Manitowoc will hold a 51% stake and a 49% stake, respectively. Operation of the joint venture will begin after approval by the government.
Initially the joint venture will produce four cranes: the GT8, GT10, GT20, and GT25. This venture will boost the sales of the Manitowoc Grove All Terrain and Rough Terrain cranes in China through Shantui’s established dealer network. It will also result in the exit of Manitowoc’s previous partner Tai’An Dongyue Heavy Machinery. Tai’An Dongyue’s absence will boost Manitowoc's earnings before interest and tax by around $20 million annually.
Capacity expansion and dealer network progress
On May 8, 2013 AGCO (NYSE: AGCO) announced plans for an expansion of its manufacturing centre located at Jackson, MN to meet the growing demand of its high-quality tractors and equipment. AGCO reported that tractor sales in North America were up 13% year-over-year in the first quarter of 2013.
Under the expansion plans, the company will invest $42 million over the next three years. This investment will result in increasing its production capacity of tractors and sprayers by 25% while maintaining the quality of its products. The investment is planned in seven project phases. The first phase is planned to be completed by the end of this year, which will include expansion of the components manufacturing area by 30,000 square foot. This expansion will result in improving efficiency by reorganizing the flow of material to assembly stations and in increasing the capacity by 20%.
AGCO acquired GSI Holdings, manufacturer of grain storage and protein production systems, in 2011. GSI’s acquisition has helped AGCO extend its reach in the agriculture industry by providing its customers with a wide range of products and services. Recently, a GSI grain storage dealer survey indicated that the demand for grain storage will be high in the second half of 2013. The combination of weaker grain prices along with an increase in chicken and hog prices are signs of good profitability for protein producers. If this trend continues, it will create a tailwind opportunity in the second half of 2013 for AGCO. Given the demand for grain storage and development in the protein space, GSI will contribute around 10% of AGCO's consolidated earnings in 2013.
Strong segment growth and restructuring plan
TEREX (NYSE: TEX) is present in more than 170 countries with manufacturing facilities in the U.S., Asia, Australia and Europe. It has a dominant position in North American market due to the strong equipment rental channel demand in its Aerial Work Platform (AWP) segment. The company provides AWP equipment like scissor lifts and telescopic booms on a rental basis. The equipment rental market is growing because of consumer shifts toward renting equipment rather than owning it.
The revenue from the AWP segment increased 21% year-over-year in the first quarter of 2013. Furthermore, it is expected that this segment’s revenue will grow 15% to 25%, with sales of $2 billion to $2.2 billion this year.
The Material Handling and Port Solutions (MHPS) segment of Terex is not performing well, due primarily to weakness in the Europe market as well as in other parts of the world. The company is planning to restructure its MHPS segment, resulting in the closure of production in Spain. Due to this restructuring plan, Terex will incur a cost of approximately $30 million to $50 million in the MHPS segment in the next quarter.
Terex’s AWP segment’s outstanding performance and its restructuring plans in the MHPS segment will provide better prospects for its future growth.
Manitowoc’s increasing crane orders in North America and its joint venture with Shantui to increase its footprint will boost the company's revenue.
The Jackson manufacturing plant’s expansion due to the growing demand and GSI’s contributions provide a positive outlook for AGCO’s growth.
I recommend buying all these stocks.
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Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!