3 Equipment Manufacturers to Look For in 2013

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In 2012, capital goods and agriculture equipment manufacturers all over the world faced a tough time producing and selling their products due to higher interest rates and declining customer demand. With the global economy now showing gradual signs of improvement, interest rates are easing off and demand is increasing. This comes as a huge relief for manufacturers.

Here are three equipment manufacturers which, due to their global presence, are expected to perform better this year than in 2012.

A company showing its huge presence

On June 2, 2013, the US Department of Defense awarded several contracts worth a total of around $950 million. Out of this, Terex (NYSE: TEX) was awarded contracts worth $327.5 million for its cranes segment. Under this contract, Terex will sell “commercial-type cranes” to the U.S. Army, Navy, Air Force and Marine Corps for a period of five years that ends on May 30, 2018. These commercial-type cranes will be delivered in Virginia, Iowa, and South Dakota in the U.S., and in Italy, France, and Germany as well. The contracted price of $327.5 million is hedged against inflation, so there is no downside risk to the contract price. This contract will contribute 4.4% annually to the total profits of the company's crane segment for the next five years.

Terex's aerial works platform, or AWP, segment reported a revenue increase of 21% on a year-over-year basis in the first quarter of 2013. The main reason behind this increase was a strong demand in its equipment renting channel. Terex's AWP segment rents scissors lifts and telescopic booms. Consumer behaviour has trended toward equipment rental rather than equipment purchase, and there is an indication of a strong future prospect for Terex’s AWP segment. The AWP segment is expected to generate revenue of $2 billion in 2013, which is an increase of 15% on a year-over-year basis.

Cranes segment to lead the way ahead

In January 2013, Manitowoc (NYSE: MTW) and Shantui Construction Machinery entered into a joint venture to build mobile cranes in China for the Chinese and global. Initially the joint-venture will produce four cranes, namely GT8, GT10, GT20 and GT25. These cranes will be sold through the existing dealer's network of Shantui and Manitowoc in China. The joint venture will also have the exclusive dealership rights of Grove All-Terrain and Rough Terrain cranes in China. This will diversify Manitowoc's cranes portfolio and will increase its presence in the global market. It is also expected that this joint venture will result in the exit of Manitowoc's previous partner, Tai'An Dongyue Heavy Machinery. The exit of Tai'An Dongyue will increase Manitowoc's earnings before interest and tax by $20 million annually.

Manitowoc reported sales of $547.4 million in its crane segment for the first quarter of 2013, showing a growth of 7.8% on a year-over-year basis. This increase in sales was because of the sustained increase in demand for cranes from the North American region as well as in emerging nations. Going forward, it is expected that the company will report sales of $2.35 billion in 2013 and $2.60 billion in 2014. This comes on the back of the company's strong order backlog, which was $776 million as of Mar. 31, 2013. Another positive side effect of the increase in infrastructure activities in North America and emerging nations is that Manitowoc looks well-positioned to capitalize on this growth and its order-book looks likely to improve.

Improving grain production to be the profit driver

In 2011, AGCO (NYSE: AGCO) merged with the GSI group. A recent GSI dealer’s survey indicates that the demand for grains is expected to increase in the second half of 2013 in North America. The reason for this increase will be a decline in grain prices caused by improved production levels. Weather conditions will facilitate higher production, and this increased production will in turn increase the demand of grain storing equipment. GSI, being a major manufacturer of grain storing equipment, will experience an increase in demand for its products. Thus, it is expected that GSI will contribute at least 10% to the profits of AGCO this year.

In the company's first quarter results, AGCO reported an increase in the sale of tractors by 13% on a year-over-year basis. It also looks likely that there will be an increase in the demand for its high-quality tractors going forward. To capitalize on this growth opportunity, AGCO announced an expansion plan of its Jackson-based tractor factory. This expansion will increase its tractor production capacity by 25% and will also improve its operational efficiencies. The Jackson expansion will be laid out in seven phases and will require an investment of $42 million between 2013 and 2015. The first phase of the expansion will add 30,000 square feet to the tractor manufacturing area and is expected to be complete by the end of 2013. This expansion will improve AGCO's overall revenue-generating capacity.

Conclusion:

Terex has been awarded almost 30% of the total contracts rolled out by the Department of Defense in June this year. This shows Terex's comparative advantage over its peers in the cranes segment in the U.S. Also, the increasing demand for equipment on rent will improve the profit margin of Terex's AWP segment.

The joint venture between Manitowoc and Shantui Construction Machinery will improve Manitowoc's future revenue generating capacity.

AGCO's expansion of its Jackson-based facility will help it to expand its production base in the next three years.

As long-term investments, all three of these stocks are a "buy."

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Shweta Dubey has no position in any stocks mentioned. The Motley Fool owns shares of Terex. 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!

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