Bigger Is Better, and Behemoths Are Beautiful

Bigger has always been better for Bucyrus (Nasdaq: BUCY  ) . The 129-year-old equipment manufacturer sent the biggest steam shovels of the day to help link two oceans in Panama, and the key acquisition of rival Marion in 1997 ended the biggest rivalry in the world of larger-than-life dragline excavators.

Bucyrus even manufactured big profits for the first quarter of 2009, defiantly bucking the trend of fellow American industrial giants like Caterpillar (NYSE: CAT  ) and steelmaker Nucor (NYSE: NUE  ) . The company dug up $57 million in net earnings for a 39% increase over the prior year. Total sales rose 17% to $606 million. Competitor Joy Global (Nasdaq: JOYG  ) reported a similar percentage increase in sales for the fiscal first quarter (ended Jan. 30) and shared Bucyrus' improved profit margin. Less specialized equipment manufacturers like Terex (NYSE: TEX  ) and Manitowoc (NYSE: MTW  ) , as I predicted back in October 2008, have not fared as well.

The largest percentage gain in sales for Bucyrus, 26.5%, came from the segment that builds and services equipment for underground mining. During this very challenging period for heavy industry, the company's 2007 acquisition of underground equipment specialist DBT has proven a wise transaction. Highlighting another sign of the times, Bucyrus noted a greater bump in sales of aftermarket parts and service (up 19.3%), as compared to new equipment sales. I believe this ties in directly with the massive cuts to capital expenditures and the project deferrals which we Fools have tracked throughout the global mining industry during the past several months. For miners looking to maximize liquidity and cut costs to the core while cutting production, extending the working lives of aging equipment fleets is an obvious choice, and provides an important component of relatively inelastic demand for manufacturers like Bucyrus.

Above $2.3 billion, Bucyrus' backlog of equipment orders remains larger than it was even a year ago, when the engines of global industry were firing on all cylinders. Still, the combined insight that Fools can glean from Bucyrus' troubling 59% decrease in new orders logged during the first quarter, Joy Global's indication of $161 million in order cancellations, and holistic market commentary from both Joy Global and coal giant Peabody Energy (NYSE: BTU  ) suggest the road forward will not be without its challenges. All that aside, I believe that Bucyrus remains a beautiful behemoth of the mining equipment space and consider the company a top-rate target for the long-term investor.

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Fool contributor Christopher Barker finds the history of Bucyrus fascinating. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Caterpillar and Peabody Energy. The Fool owns shares of Terex. The Motley Fool's disclosure policy was a sandbox excavator before it grew up.


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