A Tale of Two Manufacturing Titans

Every great story grabs the reader right from the start, but as long as indiscriminate selling rules the day on Wall Street, only half of Dickens' legendary opening is relevant here. Right now, for investors, these are simply the worst of times.

As an homage to the Dickens classic, let us consider a tale of two companies. The first, Terex (NYSE: TEX  ) , manufactures a wide range of industrial products from cranes to utility trucks -- including mining equipment. The second, Bucyrus (Nasdaq: BUCY  ) , dedicates itself solely to the manufacture of mining equipment. Given the prevailing assumption among the world's investors that industrial demand is doomed, let's look to earnings to determine whether there may be some exceptions to consider within that assumption.

Breaking a long-running trend, Terex posted a decidedly disappointing third quarter. Net earnings slipped by 34% to $93.8 million, even as net sales increased almost 15% to more than $2.5 billion. The total backlog of pending equipment sales, a crucial forward indicator, fell 14% just since the second quarter. Backlogs for Terex's aerial work platforms and construction equipment fell by more than 60% and 40%, respectively. In contrast, Terex reported an 8% increase in backlogged crane orders, and only a 9% drop in pending sales of mining equipment.

Bucyrus, meanwhile, enjoyed another knockout quarter with a 124% increase in net earnings, a 380-basis point expansion of EBITDA margin to 17.9%, and a whopping 74% increase in total sales backlog to $2.5 billion. The company's entry into the underground mining equipment business with last year's acquisition of DBT lends limited value to year-over-year comparisons, but nonetheless this was a rock-solid quarter for Bucyrus.

Diversification, it seems, is not always a Fool's best friend. Whether temporarily reconsidering the conventional wisdom of formulaic diversification within a portfolio, or identifying the top choice within a given sector, I believe this is a time for precisely targeted investing. Recent results from Peabody Energy (NYSE: BTU  ) and railroad companies like Norfolk Southern (NYSE: NSC  ) confirm that demand for coal, at the very least, remains robust with a positive long-term outlook.

Because I believe the mining industry will exhibit surprising strength once fundamentals again hold sway over investors, targeted plays like Joy Global (Nasdaq: JOYG  ) and Bucyrus make a lot of sense to me here. Diversified manufacturers like Terex and Manitowoc (NYSE: MTW  ) may one day benefit again from their diversity … but not yet.

Further Foolishness:

Now that you know my thoughts on Terex and Bucyrus, how about sharing yours? Come join the free Motley Fool CAPS online community and share your views with a wonderful pool of talented individual investors. The Fool owns shares of Terex.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns no shares in the companies mentioned. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 28, 2008, at 12:47 PM, Brettze wrote:

    Remember last Olympic event at Bejiing , I mean , the heavy smog overcast over Bejing. China had to furlough workers in order to clear up the horrible smog generated by coal fired powerplants and whatnots.. It is not sustainable !!! Nobody has yet to come up with any clean coal technology yet... Stricter controls of sulfur emissions is not enough by a long yard! Our world population is already constricted by the limited atmosphere space . We are all staggering dumboundedly around...

  • Report this Comment On October 28, 2008, at 12:49 PM, Brettze wrote:

    The media went to all extents to shield viewers from any distractions on the tubes like somone passing by and waving hands... It also include the smog , etc... What we see is not what we get on the boob tubes... get real... we still havent started on alternate energy in any big meaningful way... we are still pretending ...

  • Report this Comment On October 28, 2008, at 12:51 PM, Brettze wrote:

    EPA regulates pollution and it still hasnt regulated chimneys and stove pipes belching firewood smoke... DuH?? Get the drift?? They measure air quality in most opitimal locations instead of the worst hot spots like your neighbor burning firewood 24/7 round the clock!!! Get a life@

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