With all of the troubles in residential real estate, and the worries over weakness in commercial real estate, it might be a bit surprising to see a company that helps build cement plants continue to post amazing growth.
Yet that's exactly what's happening with Motley Fool Global Gains selection KHD Humboldt Wedag International
KHD's order backlog also continued to grow, finishing the quarter at $643.3 million, an increase of 14% year over year. The company also stated that, as of the filing date, its backlog was approaching $800 million. That's a pretty good indication that the company will continue to grow its sales into next year.
The strength behind KHD's growth is that, like fellow Global Gains selection Cemex
Some might quibble that the 13% gross margins are far below last quarter's results, but the company advised last quarter that those results weren't sustainable. Through the first six months of the year, the company's 16% gross margin is right on par with historical results.
The other point of contention in the company's earnings release is that sales related to coal and mineral extraction remain a small part of the company's revenues. Some of that is due to timing issues, since the backlog for these sales increased 49% in the quarter. However, overall, the coal and minerals sales only represent about 15% of the current backlog.
KHD would like to do an acquisition in this sector, and it has the cash and overall balance sheet strength to make one, but it can't find an attractively priced target. It's willing to wait, and in the meantime, the company is pursuing partnerships here and in waste treatment. That should help diversify its revenue stream away from cement engineering, projects where growth will inevitably level off.
In the long term, I don't worry about this business making sound acquisitions when opportunities present themselves, since management has a history of savvy capital allocation. I'm a bit surprised to see the shares roughly flat today, given the strength of KHD's earnings and backlog. On the bright side, you can thank a jittery Mr. Market for giving us an opportunity to grab reasonably priced shares of this international growth story.
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Nathan Parmelee has no financial interest in any of the companies mentioned. Cemex is also a Motley Fool Stock Advisor selection. The Motley Fool has an ironclad disclosure policy.