Demand Stays Strong for Industrial Products

Key Points - Update:

• Demand for industrial products remains good, despite the sluggish economy
• Several industrial product companies have customers in sectors not significantly hurt by the credit crunch
• Second-quarter results for industrial product companies aided by stronger economic growth abroad and the weaker dollar

Despite the sluggish economy, many industrial product companies are continuing to enjoy growth. There are two primary reasons for this:

1. The first is that many of these companies have exposure to sectors that have not been significantly hurt by the U.S. economic slowdown, such as energy, food, scientific research and utility.
2. The second is international sales. Most countries in Europe and Asia are experiencing stronger growth than the U.S. Furthermore, the weak dollar makes U.S. products more price competitive to overseas customers. And, as sales conducted overseas are translated back into dollars, a gain is realized. This is because each euro is worth about $1.55 in U.S. dollars.

These two factors have allowed several industrial product companies to both report strong second-quarter reports and raise their full-year guidance, including Cooper Industries (CBE - Snapshot Report), Mettler-Toledo (MTD - Snapshot Report) and Woodward Governor (WGOV - Snapshot Report).

An Electric Quarter For Cooper Industries

Cooper Industries, which makes electrical and circuit protection products as well as hand tools, earned 97 cents per share in the second quarter, on an adjusted basis, versus 78 cents a year prior. Brokerage analysts had expected profits to total 92 cents.

Revenues rose 18% to $1.72 billion, reflecting organic growth, the positive impact of acquisitions and the weak dollar.

The company's Electrical Products segment was particularly strong, with sales increasing 19%. Strong demand from the industrial, utility and energy markets all played favorable roles.

Citing the positive business momentum, CBE raised its full-year guidance to between $3.61 and $3.71 per share. Nearly all of the 9 covering brokerage analysts raised their forecasts in response, sending the consensus earnings estimate five cents higher to $3.62 per share.

Mettler-Toledo Profits Measure Up

Mettler-Toledo credited its broad customer base for propelling revenues 20%. The company, which makes weighing and laboratory analytical instruments, saw sales reach $515.6 million, versus $430.5 million a year prior. Per share earnings totaled $1.38 per share, 29% above last year's level and 10 cents better than the consensus earnings estimate.

MTD generated double-digit growth in its laboratory, industrial and retail segments. A weak dollar helped boost demand internationally and contributed to the overall growth.

The company increased its full-year EPS guidance by 10 cents to a range of $5.53 and $5.63 per share. Positive revisions from 6 of the 7 covering brokerage analysts caused the consensus earnings estimate to rise 10 cents to $5.63 per share.

Woodward Governor Blows Past Expectations

Woodward Governor, which makes power systems, saw fiscal third-quarter sales rise 23% to $329.8 million. WGOV's Electrical Power Systems unit was a key drive, with growth coming from the power generation and wind turbine inverter markets. The company also enjoyed double-digit growth in its larger turbine and engine systems units.

The sales growth translated into second-quarter profits of 47 cents per share, a sharp increase over year-prior results of 34 cents. Brokerage analysts had forecast 44 cents.

Based on the results, CEO Thomas Gendron raised his full-year EPS guidance to $1.75 per share, seven higher than the consensus estimate.

Not only did nearly all of the covering brokerage analysts raise their profit projections for fiscal 2008 in response, they also raised their projections for fiscal 2009. The consensus earnings estimate for fiscal 2008 now stands at $1.75 per share. The consensus earnings estimate for fiscal 2009 is now $2.04, 7 cents above the average forecast of a week ago.

Industry Groups

CBE is a Zacks #2 Rank ("buy") stock and is classified in Machinery-General Industrial. This group contains three Zacks #1 Rank ("strong buy") stocks: Graftech (GTI - Snapshot Report), Metsco (MXCYY - Snapshot Report) and Nordson (NDSN - Snapshot Report). The group also contains 7 other Zacks #2 Rank stocks.

MTD is a Zacks #2 Rank stock and is classified in Instruments-Scientific. This group contains one Zacks #1 Rank stock, Axsys Technology (AXYS), and 4 other Zacks #2 Rank stocks.

WGOV is a Zacks #1 Rank stock and is classified in Instruments-Control. This smaller group contains 1 other Zacks #1 Rank stock, Badger Meter (BMI - Analyst Report), and 2 Zacks #2 Rank stocks.

Related ETFs

There is not a specific ETF that covers these industry groups. There are several that cover the broad industrial sector such as PowerShares FTSE RAFI Industrials Sector Portfolio (PRFN), but most have a heavy weighting in large-cap stocks and/or exposure to homebuilders.

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Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Sector Rank as of July 30
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY08 Revisions Ratio	FY08 Estimates Revised Up	FY08 Estimates Revised Down
Oils-Energy	2.30	2.30	1.89	538	285
Aerospace	2.88	2.95	2.62	97	37
Industrial Products	2.89	2.91	1.02	129	126
Basic Materials	2.92	2.90	0.94	177	188
Medical	2.92	2.95	1.80	497	276
Utilities	2.99	2.93	0.98	86	88
Consumer Staples	3.00	3.00	0.77	128	167
Business Services	3.00	3.03	0.84	76	90
Computer and Technology	3.00	3.00	0.85	676	795
Conglomerates	3.04	3.04	2.36	52	22
Retail-Wholesale	3.08	3.03	0.82	268	328
Construction	3.14	3.21	0.64	58	90
Consumer Discretionary	3.17	3.13	0.57	164	287
Transportation	3.20	3.18	1.22	186	152
Finance	3.30	3.32	0.35	468	1352
Auto-Tires-Trucks	3.46	3.39	0.13	13	102

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.