Savvy patients know to seek the appropriate specialist when addressing medical concerns. When industrial sectors fall ill within an impaired economy, Fools must find the specialists that may have discovered a cure.
Let's begin with a glance into third-quarter earnings for two heavy hitters among the manufacturers of heavy equipment.
In a global economy that appeared to be firing on all cylinders, diversified equipment maker Terex
Terex lost $103 million, reflecting a monstrous 51% revenue decline. The backlog of equipment orders over the next 12 months contracted by 58% to $1.52 billion, with new orders falling in all four of the company's business segments. Net sales experienced their biggest percentage declines in the aerial work platforms unit, down a gut-wrenching 66.5% year over year. Construction equipment logged a 55.9% decline, while the cranes and materials processing units recorded lesser (though substantial) relative weakness.
Meanwhile, Terex investors will recall that shares were diluted by more than 10% back in May, when the company issued 11 million new shares to shore up its beleaguered balance sheet. Along with $450 million in notes, these capital raising efforts doubled Terex's cash balance to more than $1 billion, while contributing to rising long-term debt that now stands at $1.9 billion. Through it all, the manufacturer's net debt-to-capitalization ratio has barely budged ... standing at 34.8% as of Sept. 30.
Bucyrus has no virus
The third-quarter results from mining equipment specialist Bucyrus
Bucyrus earned a very respectable $92.1 million in the third quarter, representing a 43.5% increase over the prior-year period. Sales grew by a more modest 5%, highlighting a 500-basis-point increase in gross profit margin year over year. Sales from the company's underground mining segment posted the greatest strength, marking a 17.5% gain and cementing the accretive contribution of Bucyrus' 2007 acquisition of DBT. The underground unit now accounts for 54% of total sales.
To be sure, Bucyrus has not been spared the impacts of an impaired global credit environment, nor near-term weakness from within markets like that for domestic thermal coal. Bucyrus' backlog has receded by more than 22% since the start of the year, to $1.94 billion. New orders logged during the third quarter were a full 36% off their prior-year pace, including a whopping 53% decline in orders for original equipment.
Clearly, customers are deferring new equipment purchases in favor of extending the operating lives of fleets through rising investments in aftermarket parts. That distinction is visible in Bucyrus' sales results as well, where original equipment sales declined 1.8%, while aftermarket sales surged by 11.8%. Terex, referring to its aerial work platform segment, confirmed that "Rental customers in the North American and European markets continued to age and reduce their fleets, deferring the purchase of new products."
Bucyrus' balance sheet remains solid, with a long-term debt of about $500 million that has barely budged in 2009. For context, consider that Bucyrus' inventories are valued at more than the company's debt, and the same can be said for accounts receivable. Bucyrus' net debt-to-capitalization ratio is just about 14%, or less than half Terex's figure.
Can you hear me now?
One year ago, I asked Fools to consider the comparative business profiles of these two manufacturing titans as they pertained to the specific and identifiable challenges facing the U.S. and European economies in particular. I predicted that mining equipment specialists such as Bucyrus and Joy Global
The dual drags of diversification and debt have weighed heavily upon heavy equipment manufacturers like Terex and Manitowoc