Mining equipment manufacturer Bucyrus (Nasdaq: BUCY ) is turning 130 years old this year, but you won't find this old-timer in a Florida retirement village, sharing tales about digging out the Panama Canal back in the day.
To the contrary, Bucyrus hasn't lost a step, and recently breathed new life into its lungs with the $1.3 billion purchase of the mining equipment segment from struggling multi-tasker Terex (NYSE: TEX ) . Like its historic victory over rival Marion in 1997, Bucyrus' latest move cements its position at the pinnacle of a sector that sports a robust long-term outlook.
Bucyrus released year-end earnings results this week, with a 34% increase in net earnings to $312.7 million. Sales increased only marginally to $2.65 billion, with the difference reflected in a marked improvement in gross margin from 27.2% to 30.4%. As miners continue to rationalize purchases in this uncertain economic climate, orders of new equipment have given way to a surge in demand for aftermarket parts and service to fix existing equipment. As I have noted previously, profit margins in aftermarket parts are generally higher for manufacturers like Bucyrus, just as they are for automakers like Ford (NYSE: F ) . This is why scrapping chop shops like those operated by Schnitzer Steel (Nasdaq: SCHN ) look attractive to me in this climate.
Bucyrus worked its way through 25% of its oversized order backlog during 2009 -- and new orders are still coming in at a snail's pace (down 43% in 2009) compared with pre-crisis levels -- but the seeds of change are being sown in coal as we speak.
While Bucyrus earns the nod for best-positioned manufacturer following the Terex deal, its nearest remaining competitor -- Joy Global (Nasdaq: JOYG ) -- does a far better job of characterizing the landscape of global demand for mining equipment with consistently insightful commentary. Joy Global's bullish assessment of long-term global demand for seaborne coal continues to find confirmation in the efforts of miners like Peabody Energy (NYSE: BTU ) and Teck Resources (NYSE: TCK ) to ramp up met coal production at their respective export-friendly operations.
In contrast to Bucyrus' youthful swagger, Terex continues to suffer from stagnant demand for its more construction-sensitive business segments. Terex posted a wider fourth-quarter loss than analysts had feared, and its loss for all of 2009 was $4.39 per share. The company is focused on completing factories in India and China to fuel its eventual recovery, but I continue to view the mining equipment specialists as the cream of the heavy equipment crop.