Industrial Orders Dry Up in Europe

Machinery and Industrial Equipment Orders Drying Up in Europe

According to data released by the VDMA Group (an industrial association in Europe, representing small/medium sized companies in engineering) earlier today, machinery and factory equipment orders in May 2009 declined 48% year-over-year in Germany, Europe’s biggest economy. However, this was an improvement over the year-over-year decline of 58% witnessed in April.

Orders from Germany were down 42%, while those from other countries were down 51% during the month. This decline was attributed to the delay and/or cancellation of orders by industrial customers due to the lack of positive sentiment about the economy and their businesses. Orders for the March-May period were down 47%, compared to the prior-year period.

Companies like Caterpillar (CAT - Analyst Report), Terex (TEX - Analyst Report) and Ingersoll-Rand (IR - Analyst Report), providing machinery and industrial equipment, have been witnessing weak demand in Europe since the third quarter of 2009.

CAT reported a 46% decline in machinery sales in the EAME region for the first quarter of 2009 on account of the severe recession. TEX noted that its Aerial Work Platforms customers have significantly reduced their purchases since the second half of 2008. IR forecasts a demand decline of approximately 60% for 2009 in the European markets. These companies are witnessing deteriorating backlog levels.

Given the weak construction levels, tighter credit markets and uncertainty regarding the economic recovery, we expect companies in various industries to hold themselves back from placing orders in 2009. Demand levels for machinery and equipment are expected to remain weak in North America, Europe and other developed as well as developing nations, compared to the 2008 level. Industrial equipment providers are expected to report double digit decline in sales for the year, as the near-term outlook remains uncertain.

We maintain our Hold recommendation on these companies.