According to a Global Industry Analyst report, the global industrial machinery market will reach $514 billion by 2015, with an annual growth rate of 7.2% from 2012. Companies in this industry are establishing their foothold by looking at inorganic growth options and improving their operational efficiencies. Also, they are working to improve their margins which will result in gaining investors’ confidence.
I have analyzed three companies from this sector, as these are focusing on gaining the larger market share with their different strategies. Let’s find how these strategies are going to work for them and drive growth.
Divestiture and acquisition driving growth
Barnes Group Inc. (NYSE:B) acquired the world’s largest hot-runner-system manufacturer, Synventive, for $335 million in August 2012. Synventive’s hot runner system is a technology that enables complex molding injection applications and helps companies to meet industrial standards. Synventive serves facilities across 50 countries, with three manufacturing units in the U.S. It has contributed $58 million to Barnes Group Inc. (NYSE:B)’ revenue in 2012, but with no meaningful contribution to EPS.
Synventive has served automobile manufacturing companies designing new car models. According to IHS Global Insights, new car models are projected to double in 2014, to 47, compared to 26 in 2013, and the automobile manufacturers are using more plastics in their new cars. Hot runner injections will be used in the automobile industry in designing new models, and Barnes Group Inc. (NYSE:B) will fulfill this demand around 12 months in advance. Synventive is expected to boost Barnes Group Inc. (NYSE:B)’ revenue by $152 million in 2013 and EPS of around $0.25 annually in 2013.
On April 24, 2013, Barnes Group Inc. (NYSE:B) completed the sale of its Barnes Distribution North America business, or BDNA, to MSC International Direct for $550 million in cash. BDNA provides logistics support through inventory management and technical sales and support. It will utilize the sale proceeds to expand its core business manufacturing facility, aftermarket services, and is also planning to improve its financial ratios through debt reductions and share buybacks. It has planned to repurchase 4 million-5 million shares in 2013, which will boost investor confidence.
New contracts mean new opportunities
Parker-Hannifin Corporation (NYSE:PH)’s operating segment, Parker Aerospace, has signed a contract with Rolls-Royce to partner in its Trent XWB-97 engine program. This Trent XWB-97 engine is developed for the new Airbus A350 XWB-1000 aircraft, which is the only engine currently available to power this new aircraft. The first Parker developed Trent XWB-97 engine will be delivered by the end of 2013, and the initial testing will commence in 2014. The new Airbus with this engine will be ready for take-off by 2016. Parker-Hannifin Corporation (NYSE:PH) expects to generate revenue of around $2.2 billion from the total life of the project. Parker-Hannifin Corporation (NYSE:PH) believes this long-term partnership will strengthen its relationship with Rolls-Royce and will enhance its presence in the global market.
The company reported free-cash-flow growth of 116% in the third quarter ended March 2013. This was mainly driven by its efficient operational management. The company plans to use this money for share repurchases and dividend distribution. Parker-Hannifin Corporation (NYSE:PH), after completing $49 million in share repurchases in the third quarter ended March 2013, plan for the additional repurchase of $50 million in the fourth quarter of 2013. This makes for the total repurchase of $206 million in fiscal year 2013. It expects the share repurchase program to continue into the next year with the expected free cash flow of more than $1.22 billion. Because of the share repurchases, it expects flat EPS in fiscal year 2013, EPS of $7.5 per share in fiscal year 2014, and $8.10 in fiscal year 2015, from $7.41 in fiscal year 2012.