According to IMF, the world economy is expected to grow 4.1%in 2013, up from 3.6% last year. Economic activities have a direct correlation with demand for machines, so this growth will likely increase the demand for machines. Three machine manufacturing companies have diversified product portfolios and are poised to take advantage of increasing demand. These companies manufacture machinery for various sectors such as healthcare, automobiles, and more. With opportunity on the horizon, what strategies are these companies are adopting for higher revenue generation?
Rising demand from emerging economies
Otis, a wholly owned subsidiary of United Technologies Corporation (NYSE:UTX), contributed 19% of the total sales in the first quarter of 2013. Its orders for new elevators and escalators are on the rise, due mainly to growth in China’s unpenetrated area, which showed 27% quarter-over-quarter growth in the first quarter. This growth in China is mainly due to rising infrastructural activities. There are approximately 1.7 elevators per 1,000 people in China, compared to 10.9 in Western Europe. With this growth potential in mind, the company plans to open 40 new service centers in China in 2013. Therefore, Otis expects to generate revenue of $12.5 billion in 2013 and $13.1 billion in 2014, from $12 billion last year.
The company acquired Goodrich in 2012 to enhance its portfolio of aerospace machinery products. Earlier, United Technologies Corporation (NYSE:UTX) used to procure the products from the original equipment manufacturer, or OEM. With the Goodrich acquisition, it saved $63 million in procurement expenditures in 2012. This acquisition will bring further cost synergies to the company of $200 million in 2013. Cost synergy from this acquisition is expected to reach $500 million by 2016.
Furthermore, air-travel demand from emerging economies is increasing at a growth rate of 5.9% annually. This will boost aircraft machinery orders, which in turn will drive growth in the aerospace segment of the company. With the Goodrich acquisition and the growing demand of air travel, its aerospace segment expects to generate $13.4 billion this year, from $8.3 billion in 2012.
FDA approval and fresh water supply add growth
Hach, a wholly owned subsidiary of Danaher Corporation (NYSE:DHR), manufactures machines used for testing water quality that are in demand due to rising pollution around the world. Hach is focusing on product innovation and productivity enhancements. Over the past three years, it has achieved 30% better productivity and plans to achieve an additional 20% in the next few years. To meet this goal, the company has launched a new manufacturing process, deemed “carrier flow.” Under the carrier flow process, that product will move in an assembly line and parts will be brought to the product. This process has shown positive results with its new product, silica analyzers. Its assembly time has reduced by 50%, with a long-term potential of reducing to 65%. Approximately 75% of the Hach products will be manufactured via carrier flow by year’s end. With this plan, Hach will improve its productivity by 15% in the third quarter of 2013.
Troponin assay is a test which tells whether an enzyme related to heart attacks is present in a patient or not. This test is done with the help of two machines, Access and DxI. Beckman, a wholly owned subsidy of Danaher Corporation (NYSE:DHR), made changes to its troponin assay test in 2011 without FDA approval. Rather than showing positive results, the Dxl machine started to show negative results. This machine was pulled off the U.S market. The company could sell Access machines but only to its existing customers.
In 2011, both the machines contributed sales of $900 million, which was 25% of total Beckman sales. The company was not able to sell the machines last year, halting the organic growth of the company. Beckman made further changes and filed new submission with the FDA. On June 19, 2013 the FDA approved troponin assay on the Access machine. Now, the company will be able to sell troponin assay on Access. Approval on the Dxl machine is also expected by the year’s end. With the approval, it will able to sell the machines in the U.S. market and will once again add to the sales of the company.
With these strategies, the company expects to generate total revenue of $18.9 billion this year from $18.2 billion in 2012. This will be followed by $19.9 billion in 2014.
Acquisition and new technology for future growth
Honeywell International Inc. (NYSE:HON)’s gas-detecting business has annual sales of $500 million worldwide. The company is focusing on developing markets for gas detection in air. For this reason, it acquired the RAE system from Vector Capital for $340 million in the first week of June 2013. RAE is strong in photoionization detection, or PID, which measures the concentration of gases in air. The deal will contribute merely $20 million in earnings this year. RAE air gas detection has presence in more than 120countries, and this will widen the gas detection market of the company.
Honeywell International Inc. (NYSE:HON)’s penetration with its turbocharger is merely 25%. Turbochargers are devices inserted in engines to produce more power. The company is focusing on increasing its market share. It launched the next generation of turbochargers, Garrett Original Reman, in Europe on June 5, 2013. This new turbo will be in accordance with OEM specifications. Along with new turbo-charged engines, the company will also target old vehicles seeking quality by refurbishing their turbo engines with the new turbo. With this technology, turbo penetration will reach approximately 45% by next year. With the introduction of next-generation turbochargers, its revenue is expected to increase by merely $30 million in 2013. However, with the increasing penetration, its revenue could reach $3.7 billion in 2014, up from $3.56 billion in 2012.
Conclusion
United Technologies Corporation (NYSE:UTX) is expanding in China due to its increasing demand for elevators. It will also continue to gain synergies from its acquisition of Goodrich in the coming years.
Danaher Corporation (NYSE:DHR) has received FDA approval in Troponin array, which will be beneficial to the company. Additionally, the company will be improving its water machinery productivity for future growth.
Honeywell International Inc. (NYSE:HON)’s acquisition of the RAE system as well as its manufacturing of next-generation turbochargers will provide increasing revenue for the company.
Looking at the potential of the above companies, I recommend a buy for all stocks.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Take Advantage of Economic Trends With These Machine Makers originally appeared on Fool.com.
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