The direct correlation between increasing economic activities
and the prospects of the machinery industry evokes in us a
confidence in the industry right on the heels of anticipated
economic growth worldwide.
Recovery, though gradual, from the 2008 global crisis has raised
demand for industrial products and has in turn boosted the need for
new/advanced machinery. The major end-markets for the machinery
industry include agriculture, construction, mining and energy
industries, among others.
The world economy will likely grow by 3.6% in 2014, according to
the International Monetary Fund's (IMF) World Economic Outlook,
published in Oct 2013. Growth in advanced economies and emerging
and developing countries are projected at 2.0% and 5.1% for 2014,
The world economic growth projection was a slight moderation from
what was predicted by the IMF in Jul 2013 due primarily to weak
demand and slower-than-anticipated growth in emerging markets.
Admittedly obstacles still persist but the overall growth picture
may not materially deteriorate or deviate from the IMF's Oct 2013
A brief discussion on the future prospects of the machinery
industry among different nations has been provided below.
Prospects in the United States
One can have a fair idea of the growth prospects for the Machinery
industry, one of the most attractive industries in the United
States, from the performances in the recent past. In Nov 2013,
industrial production in the United States edged up 1.1% from the
previous month while on a yearly basis it recorded growth of 3.2%.
Manufacturing output increased 0.6%.
According to the U.S. Census Bureau report, published in Jan 2014,
machinery shipments in the 11 months ended Nov 2013 increased 3.0%
year over year while new machinery orders grew 7.3%. Machinery
order backlog was up 2.3%. Shipments for construction and
industrial machinery rose by 3.4% and 12.3%, respectively, while
that for mining equipment and farm machinery dipped 5.6% and 2.0%,
Export demand has been considered crucial for the future growth
prospects of the U.S. machinery industry. According to a report
published by the Association of Equipment Manufacturers (AEM), the
United States' construction equipment exports fell 21% in the first
half of 2013 while agricultural equipment exports registered a 9.5%
In the years to come, the U.S. is expected to witness growing
international demand for technologically advanced construction and
agriculture equipment. In this respect, it is worth mentioning that
the U.S.-Russia trade bill will boost U.S. exports of construction
equipment to Russia, the 11th largest export market for U.S.
construction equipment. The IMF expects the United States to grow
2.6% in 2014.
Unemployment still seems to be a disturbing factor. As per the
latest report by the Bureau of
Labor Statistics, job addition in Dec 2013 was well below
expectation at 74,000 and below 241,000 additions made in Nov 2013.
Average monthly job additions for 2013 were at 182,000 compared
with 183,000 in 2012. However, the unemployment rate came in at
6.7% versus 7% in Nov 2013. This latest report has put a question
on whether the Federal Reserve will opt for a second round of $10
billion cut in its quantitative easing program from $75 billion to
Despite the disturbing labor market statistics, there is a glimmer
of hope emanating from evidences of strengthening demand in the
housing as well as durable goods markets. Conditions in the credit
markets are also improving slowly.
The recovery seen in the Japanese economy in the past few quarters
was primarily triggered by economic policies undertaken by the
government, recovery in capital spending and higher machinery
orders from private sector and manufacturing industries. The
country is now on the verge of implementing a sales tax hike of 3%
in Apr 2014 with a view to curb its ballooning debt levels. This
measure combined with the stimulus promised, if successfully
implemented, is expected to drive growth in the medium to long
The latest report by Japan's Cabinet Office shows that total
machinery order in the month of Oct 2013 fell 4.6% from its
previous month. However, the main highlight of this report was a
0.6% increase in private-sector machinery order (excluding volatile
orders from ships and electric power companies) driven by an 11.5%
increase in orders from non-manufacturing industries. This increase
has sparked hopes for a hike in capital investments by companies,
anticipated to be a key driver for the country's growth.
Also, in a release in Dec 2013, Japan's Cabinet Office approved a
forecast of a 3.3% increase in industrial production in fiscal
2014, an increase from an estimated 2.4% for fiscal 2013. The
Japanese economy is projected to grow 1.2% in 2014, according to
China: The Chinese government is focused on rapid urbanization and
has planned major investments for this. Domestic demand is strong
in the country while exports are also on the rise. Further, efforts
in improving trade relations with Brazil, Russia and other
countries are expected to boost growth.
In 2013, the world's second largest economy recorded a 7.6%
year-over-year increase in its foreign trades. Exports were up 7.9%
while imports grew 7.3%. Trades with the European Union increased
2.1% and with the U.S. were up by 7.5%. Industrial production in
Nov 2013 grew 10% over the year-ago month.
Growth in 2014 is expected to be driven by investments and recovery
in demand from the U.S. and Europe. According to the IMF, the
Chinese economy is projected to grow 7.3% in 2014.
India: Industrial production in India in Nov 2013 fell 2.1% year
over year due primarily to weak domestic consumption. According to
the IMF, the country is projected to grow 5.1% in 2014. Rise in
domestic and external demand, expectation of policy improvements
and better monsoon conditions are the prime drivers of the
Brazil: The country is fast growing as the favourable destination
for foreign direct investments. With a population of over 200
million - according to data released by the Brazilian Institute of
Geography and Statistics (IBGE) - the country's hunger for better
infrastructural and agricultural requirements are on the rise.
Industrial production in Nov 2013 has grown 0.4% from the year-ago
Industries like tourism, steel and electricity, among others offer
promising growth especially as the country is gearing up to host
the upcoming 2014 FIFA World Cup and 2016 Olympics. In the third
quarter of 2013, the country's gross domestic product (GDP) grew
2.2% year over year.
The Brazilian government, under its Growth Acceleration Program or
PAC - phase II, has major investments planned for the development
of ports, railroads, airports, wind farms and roads. Other areas of
focus are sanitation, energy and logistics. Also, to boost its
export businesses with other countries, roughly 24 Free Trade Zones
(FTZ) are being set up across 20 Brazilian states.
According to the IMF, the country is expected to grow 2.5% in 2014.
South Africa: The country is making progress and a sequential
increase of 0.7% was recorded in its GDP in the third quarter of
2013. In Nov 2013, South Africa's industrial production increased
0.3% from the comparable period a year ago.
The government is focused on improving its mining, manufacturing
chemicals, and agricultural sectors. Huge public investments,
amounting to R4 trillion, have been announced under the
infrastructure development programs. Also, the country is keen on
expanding its trade relations with its largest exporter cum
importer country, China.
According to the IMF, South Africa is expected to grow 2.9% in
Other Major Players
Korea's industrial production in Nov 2013 decreased 0.3% from the
previous month while it increased 1.2% from Nov 2012, according to
the latest data released by Statistics Korea. The country seems to
be recovering slowly from the impacts of weak exports caused by
uncertain economic conditions in the Eurozone.
Thailand's industrial production declined 10.6% in Nov 2013 from
the year-ago period, as reported by the Office of Industrial
Economics. The country is making huge investments, both domestic
and foreign, to improve its service and public utilities, metal
products industries as well as machinery and transport equipment
related industries. To further enhance its exports, the government
is laying emphasis on infrastructural developments and free trade
agreements. However, the continuing political unrest, if unresolved
for long, will hamper growth prospects of all industries in the
Eurozone - Showing Signs of Improvement
The Eurozone's industrial production (excluding construction) in
Nov 2013 grew 1.8% from Oct 2013 while it increased 3.0% year over
year, according to data released by the Eurostat in Jan 2014. On a
monthly basis, industrial production in Nov 2013 increased 11.7% in
Ireland, 6.4% in Sweden, 3.8% in Malta and 2.5% in the Netherlands.
According to the VDMA Machine Makers' Association, German machine
tool orders in Nov 2013 increased 7.0% year over year. Domestic
orders were down 1% while international orders grew 12%.
Important Players in the Machinery Industry
Deere & Company's
) fiscal 2013 (ended Oct 31, 2013) results were impressive. For the
fiscal year, equipment sales rose roughly 4%, with price
realization contributing 3%. This agricultural and forestry
equipment provider is expanding globally to leverage benefits from
the growing global farm industry.
Management anticipates equipment sales to decrease 3% year over
year in fiscal year 2014. Net earnings for the year are projected
to be approximately $3.3 billion.
) posted a 19% decline in Machinery and Power Systems sales in the
third quarter of 2013. For 2013, the company expects revenue to be
approximately $55 billion, down from the $56-$58 billion range
expected earlier due primarily to weak demand for mining equipment.
The company is slated to report its fourth quarter results on Jan
Other top players in the agricultural, construction and mining
), among others.
Prime companies operating in machinery industries other than
agricultural, construction and mining are
Rockwell Automation Inc.
Illinois Tool Works, Inc.
Manitowoc Company, Inc.
), among others.
Zacks Industry Rank
Within the Zacks Industry classification, Machinery is broadly
grouped into the Industrial Products sector, one of the 16 broad
More than 260 industries are ranked in the 16 Zacks sectors based
on the earnings outlook for the constituent companies in each
industry. To learn more visit:
About Zacks Industry Rank
As a guideline, industries with Zacks Industry Rank of #88 and
lower are considered to have a positive outlook, those between #89
and #176 have a neutral outlook while the ones with #177 and higher
possess a negative outlook.
The machinery industry is further sub-divided into five industries
at the expanded level: machine tools and related products,
machinery - construction and mining, machinery - electrical,
machinery - farm and machinery - general industries.
The Zacks Industry Rank for machine tools and related products is
#94, machinery - construction and mining is #95, machinery -
electrical is #97, machinery - farm is #98 and machinery - general
industries is #99. Looking at the Zacks Industry Rank of all the
machinery related industries, it can be deduced that the sub
segments of the machinery industries have a neutral outlook.
Earnings Trend of the Sector
Considering the performance of 4% of the companies within the
Industrial Products sector, it can be concluded that until Jan 7,
2014, the results were good on a year-over-year basis. Earnings in
the fourth quarter grew 8.8% and revenues went up by 7.9%. Both
earnings and revenue beat ratios (percentage of companies coming
out with positive surprises) were 100%.
The trend seems positive for the Industrial Products sector, as
earnings in the fourth quarter of 2013 are anticipated to grow 2.1%
as against 1.3% growth recorded for the third quarter. Further
increase is predicted with growth rates reaching 8.6% in 2014 and
12.2% in 2015.
On the top line, a wider fall of 2.9% in revenues is projected for
the fourth quarter versus a 1.2% decline recorded in the third
quarter. The downtrend is predicted to worsen during 2014, with
some relief expected in the final quarter of the year. Overall, a
meagre growth of 0.7% is expected in 2014 while growth of 3.8% is
anticipated in 2015.
In view of all the Zacks sectors combined, total earnings growth
rate in the fourth quarter of 2013 is anticipated to be 6.3%.
Revenue growth is predicted at 1.5% with a modest gain anticipated
For more information about earnings for this sector and others,
please read our '
Fiscal government expenditures play a counter-cyclical role curbing
the ill effects of slower economic development and a tight credit
market. China's structural stimulus package, government spending on
social welfare, construction of low-cost housing, and completion of
infrastructure projects on agriculture, forestry and water
resources received special attention.
Also, the U.S. Congress had a stimulus package designed in 2009
that had money flowing into infrastructure spending. Also, The
American Energy & Infrastructure Jobs Act (H.R. 7) will boost
spending in infrastructure projects. Approximately $260 billion
will be allocated to fund roads, bridges and highway projects over
Russia, which became a World Trade Organization (WTO) member in
2012, will open the gates for companies worldwide to meet the
growing needs for modernizing the agricultural, transport and
infrastructure sectors of the economy.
We remain wary of rising raw material costs of some of the major
players of the machinery industry. Steel prices along with energy,
especially coal and fuel prices, remain the prime causes of
Research and development costs are also on the rise for machine
makers as they seek to manufacture more sophisticated and
technologically advanced machinery. Availability of funds remains a
stumbling block as some major nations are still struggling to bring
stability to their own economies.
Favorable commodity prices are a boon, although government policies
affecting prices along with export and import policies and trade
relations with other countries impact the machinery industry at
To Conclude: Prospects are Bright
Albeit economic uncertainties still persist in many parts of the
world, still efforts on implementing better policies, growing trade
relations and a burgeoning population are prime catalysts for
driving demand for better infrastructure, modernized methods of
agriculture and mining/manufacturing methods. All these will
eventually boost demand for technologically advanced equipment in
these industries. Moreover, looking ahead, the growth path widens
for the emerging and developing nations, which will inevitably be
attractive destinations for machine makers worldwide.
AGCO CORP (AGCO): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis
DEERE & CO (DE): Free Stock Analysis Report
ILL TOOL WORKS (ITW): Free Stock Analysis
MANITOWOC INC (MTW): Free Stock Analysis Report
ROCKWELL AUTOMT (ROK): Free Stock Analysis
TEREX CORP (TEX): Free Stock Analysis Report
TORO CO (TTC): Free Stock Analysis Report
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