KHD Humboldt Wedag (NYSE: KHD) let discretion be the better part of valor and came out the loser for it yesterday.
The Hong Kong-based company provides engineering and equipment, mostly for cement manufacturers, but also for coal and minerals processors. Its business is concentrated in Russia, the Americas, Asia, Eastern Europe, and the Middle East -- areas that, like most of the rest of the developed and developing world, have been hit hard by the virulent global credit crunch.
Nevertheless, it's rare that you see a company taken to the woodshed to the tune of a 38% hammering of its share price on the day it announces generally good quarterly numbers. Income from continuing operations was $30.8 million, up 56% from the same quarter of 2007, and its revenue was up 29%.
So why the nastiness from the market? It seems that, with the economic malaise spreading across the globe, the company's order intake dropped 65% to $81 million in the quarter. And to make the message a little more daunting, management noted that many of its customers are facing liquidity problems and some have approached it to discuss renegotiating contracts.
At the same time, however, there are two obvious strengths that likely will help KHD weather the slowdown in demand for its equipment and services:
- Management has clearly and carefully thought through its options and has decided to change its "focus from growth to sustaining equity during this period of uncertainty ..."
- With more than $400 million in cash and equivalents on its balance sheet, against very little debt, the company is trading well below its net cash. Roughly half of that cash is tied to future projects, which, if canceled, would result in a return of cash to its customers.
The cement business -- and, therefore, the share prices of companies in the industry -- are battered these days because of credit and other economic difficulties. Switzerland's Holcim (OTC BB: HCMLF.PK) announced yesterday that it would shutter two plants in the U.S. and one in Spain. Mexico's Cemex (NYSE: CX) has watched its shares plummet more than 80% from their 52-week high, while Dallas-based Texas Industries' (NYSE: TXI) shares have retreated by almost 70%.
So you may want to exercise caution before running out and placing a buy order for KHD. But when the world of cement locates a cure -- and it will -- the company's track record, along with the bullet points above, could make it a stock worth your attention.
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