Industrial Sector Research · Jeffrey D. Hammond (216) 689-0210 (216) 689-0236 [email protected]...
Transcript of Industrial Sector Research · Jeffrey D. Hammond (216) 689-0210 (216) 689-0236 [email protected]...
September 2019
Industrial Sector Research
The Industrial Cycle:
Monthly Update on Key End Markets
For important disclosures and certifications, please refer to the Disclosure Appendix.
KeyBanc Capital Markets Inc., Member FINRA/SIPC. ©2019 KeyCorp.
ADL8096
Steve Barger
Jeffrey D. Hammond
(216) 689-0210 (216) 689-0236 [email protected] [email protected] Ken Newman Brad Vanino (216) 689-3183 (216) 689-7929 [email protected] [email protected] Ryan Mills, CFA Patricia Gorman (216) 689-7462 (216) 689-3224 [email protected] [email protected]
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September 2019
Contents EXECUTIVE SUMMARY ....................................................................................................................................... 3 SECTION 1. END MARKET AND MACROECONOMIC DATA ............................................................................ 4 SECTION 2. CALENDAR, COMMODITIES AND CURRENCY ............................................................................. 7
COMMODITIES ....................................................................................................................................................................... 9 CURRENCIES ....................................................................................................................................................................... 10
SECTION 3. END MARKET DISCUSSIONS ....................................................................................................... 11 COMMERCIAL AEROSPACE............................................................................................................................................... 11 AGRICULTURE ..................................................................................................................................................................... 14 AUTOMOTIVE ....................................................................................................................................................................... 16 CONSTRUCTION (NON-RESIDENTIAL) ............................................................................................................................. 17 CONSTRUCTION (RESIDENTIAL) ...................................................................................................................................... 20 CONSTRUCTION EQUIPMENT ........................................................................................................................................... 22 GENERAL INDUSTRIAL ....................................................................................................................................................... 23 OIL & GAS ............................................................................................................................................................................. 26 SEMICONDUCTOR .............................................................................................................................................................. 27 MEDIUM/HEAVY-DUTY TRUCK .......................................................................................................................................... 29
SECTION 4. MONTHLY ORDERS ...................................................................................................................... 31 SECTION 5. END MARKET AND GEOGRAPHIC BREAKDOWNS BY COMPANY........................................... 34
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September 2019
The Industrial Cycle: Monthly Update on Key End Markets September 2019
Jeffrey D. Hammond: (216) 689-0236 — [email protected] Steve Barger: (216) 689-0210 — [email protected]
Ken Newman: (216) 689-3184 — [email protected] Ryan Mills, CFA: (216) 689-7462 — [email protected] Brad Vanino: (216) 689-7929 — [email protected] Patricia Gorman: (216) 689-3224 — [email protected]
EXECUTIVE SUMMARY Industrial End Market Monthly – We Maintain Our Cautious View for Forward Results Given Continued Deceleration in Global Macro Headlines; Driven in Part by Trade Noise, Channel De-Stocking, and Other “Transitory” Disruptions; We Think Continued Deceleration Could Lead to Higher Skepticism on Names with Back-Half Weighted Outlooks and Potential Risks of Guidance Cuts; as Such, We Maintain a Selective Preference for Names with Better Downside Protection via Strong Balance Sheet Optionality, Leaner Fixed-Cost Base, or Visible Catalysts to Support Earnings Momentum Through the Cycle. As we progress through 3Q19, we maintain a cautious view for forward results given continued deceleration in global indicators. This has been driven in part by continued trade noise and related channel destocking as companies evaluate potential impacts if a resolution isn’t made. Furthermore, we think 2Q19 earnings misses and guidance reductions support a more cautious view. As such, we see more risk in names with back-half weighted guidance and are gravitating more toward names with solid balance sheet strength, favorable valuation (at or close to trough multiples), and a leaner cost base or visible catalyst to support earnings through the entire cycle. From an end market perspective, we think trends remain somewhat favorable for aerospace, while non-residential construction and oil and gas appear more mixed. Digging deeper in oil and gas, we note MRC Global recently lowered its 3Q19 top-line guidance, driven by upstream and midstream headwinds in the U.S., as well as upstream end markets in Canada. From a short cycle perspective, we note Fastenal recently reported August sales, which showed organic improvement of 6.5% y/y compared to 6.2% y/y in July, with manufacturing customers up 8.8% and up 1.4% for non-residential customers. From a macro perspective, we note sentiment reflects moderation with the U.S. PMI dropping below 50 for the first time in 35 months in August, as well as International weakness (Eurozone PMI 47.0 and China 49.5). Digging deeper in the U.S., the GBI: Metalworking Index has remained below 50 for two consecutive months, indicating contraction. Lastly, we continue to have concerns around U.S. manufacturing inventories as they have outpaced new orders growth for seven consecutive months and the inventories-to-new orders ratio currently sits ~2% above its five-year average. Highlighted Names Highlighted names include Harsco Corporation (OW, $35 price target; highly attractive entry point, shifting portfolio toward high-growth, less cyclical markets, expect active deployment of proceeds toward M&A to provide positive NT catalysts); Rexnord Corporation (OW, $34 price target; uniquely positioned to outperform amid a recessionary scenario given prior fixed cost reduction, pivot away from cyclicality, and leaner channel structure); NOW, Inc. (OW, $18 price target; leveraged to improving 2H19 O&G well completions environment, share gains and cross-selling opportunities within its Modular Tank Battery turnkey solution); and AMETEK, Inc. (OW, $100 price target; premium >20% margin businesses driven by highly niche product portfolio, solid FCF generation and balance sheet, propensity for M&A not reflected in consensus numbers). Industrial Group Stock Performance Highlights For August, our group of recommended stocks decreased an average of -5.2% (market capitalization-weighted -1.6%), compared to the returns of the S&P 500 -0.9%, S&P Midcap Index -2.7%, Russell 2000 -3.6%, and our coverage’s most direct peer group, the S&P Industrials, of -0.7%. The recommended stocks that performed the best in August were A.O. Smith Corporation (AOS) +6.5%, NOW, Inc. (DNOW) +4.0%, and Eaton Corporation (ETN) +0.9%. The recommended stocks that performed the worst included NN Inc. (NNBR) -16.0%, Gates Industrial Corporation (GTES) -15.8%, and Harsco Corporation (HSC) -14.7%.
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September 2019
SECTION 1. END MARKET AND MACROECONOMIC DATA
CHART 1. TRACKING THE END MARKET CYCLES
End-Market Cycles - Where are we today?
Accelerating
Growth
Peak
Growth
Decelerating
Growth
Decelerating
Decline
Accelerating
Decline
Non-Cyclical
Early-Cycle
Mid-Cycle
Late-Cycle
Trough Decline
Commercial
Construction
Military/Defense
Ag Equipment
Residential
Construction
General
Industrial
Oil & Gas
Construction
Machinery (Heavy)
Water / Wastewater
Mining Equipment
Semiconductor
Equipment
Heavy Truck
Power Generation
Steel
Automotive
Chemicals
Construction
Machinery (Light)
Comm’l Aero
(Aftermkt)
Comm’l Aero
(OEM)
Source: KeyBanc Capital Markets Inc. Estimates & Analysis
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September 2019
TABLE 1. END MARKET AND MACROECONOMIC DATA
Macroeconomic 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
Leading Economic Indicators Index: 1996=100 75.7 81.3 85.4 87.3 89.8 94.8 98.8 100.0 104.0 109.9 111.5 111.7 112.2 Leading Economic Indicators (%, Y/Y Chg) (13.8%) 7.4% 5.2% 2.1% 2.9% 5.6% 4.2% 1.2% 4.0% 5.7% 3.2% 2.2% 1.6% Industrial Production Index: 1997=100 89.2 94.1 97.1 100.0 102.0 105.2 104.1 102.1 103.7 108.0 109.8 109.2 109.2 Industrial Production (%, Y/Y Chg) (5.5%) 5.6% 3.2% 2.2% 2.3% 3.4% (3.3%) (0.5%) 3.0% 4.8% 3.6% 1.8% 1.2% Capacity Utilization (%) 68.7 74.0 76.5 76.7 76.9 78.2 76.8 75.7 76.1 78.7 78.6 77.8 77.5 ISM PMI Index Index 47.3 56.8 55.1 51.4 53.4 55.5 51.3 51.4 57.4 58.8 55.4 52.2 51.2 49.1 ISM PMI New Orders Index Index 52.0 58.2 57.0 52.7 56.5 58.2 52.3 54.5 62.2 61.5 57.0 51.5 50.8 47.2 Unemployment Rate (%, SA) 9.3% 9.6% 9.0% 8.1% 7.4% 6.2% 5.3% 4.9% 4.4% 3.9% 3.9% 3.6% 3.7% 3.7% Employment Overtime (NSA, hours) 2.7 3.1 3.3 3.3 3.5 3.6 3.3 3.3 3.5 3.5 3.4 3.4 3.3 3.2 Fed Funds Target Rate (%) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.50% 0.75% 1.50% 2.50% 2.50% 2.50% 2.25% 2.25% Consumer Price Index (SA, 1982-1984=100) 214.5 218.0 224.9 229.6 232.9 236.7 237.0 240.0 245.1 251.1 253.3 255.1 256.2 Consumer Price Index (%, Y/Y Chg) (0.4%) 1.6% 3.2% 2.1% 1.4% 1.6% 0.1% 1.3% 2.1% 2.4% 1.6% 1.8% 0.3% Durable Goods Orders ($ bil. NSA) 1,841 2,267 2,502 2,635 2,712 2,836 2,695 2,649 2,791 3,011 760 733 250 Durable Goods Orders (%, Y/Y Chg) (7.8%) 21.7% 16.1% 1.9% 0.0% (2.6%) (1.7%) 1.4% 9.7% 3.7% 0.8% (1.9%) 1.0% Inventory/Sales (Ratio) 1.37 1.27 1.26 1.28 1.29 1.30 1.37 1.40 1.37 1.35 1.39 U of M Consumer Sentiment Index: 1967=100 66.3 71.8 67.4 76.5 79.2 84.1 92.9 91.8 96.8 98.4 94.5 98.5 98.4 89.8 Italian Business Confidence Index: 2000=100 71.7 96.8 99.0 88.9 94.5 100.2 103.4 102.5 108.3 106.7 101.5 101.1 100.1 99.7 German Business Climate Index: 2000=100 85.2 97.1 100.4 96.7 97.9 99.3 100.0 100.2 103.2 103.1 99.5 98.3 95.8 94.3 Euro Manufacturing PMI Index 43.3 55.4 52.2 46.2 49.6 51.8 52.2 52.5 57.4 55.0 49.1 47.7 46.5 47.0
Aerospace 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
Rev. Pass. Miles, Domestic (units) 539.0 552.9 563.6 568.7 577.9 595.3 630.7 660.0 683.8 720.8 171.2 Rev. Pass. Miles, Domestic (%, Y/Y Chg) (5.2%) 2.6% 2.0% 0.9% 1.6% 3.0% 5.9% 4.6% 3.6% 5.4% 5.1% Avail. Seat Miles, Domestic (units) 664.6 672.5 680.1 682.0 692.2 704.4 741.9 780.1 808.4 853.4 207.6 Avail. Seat Miles, Domestic (%, Y/Y Chg) (6.7%) 1.2% 1.1% 0.3% 1.5% 1.8% 5.3% 5.1% 3.6% 5.6% 5.0% Load Factor, Domestic (%) 81.1% 82.2% 82.9% 83.4% 83.5% 84.5% 85.0% 84.6% 84.6% 84.5% 82.5% Rev. Pass. Miles, Int'l (units) 230.4 245.2 250.7 254.5 262.5 267.2 271.6 273.5 280.6 290.7 66.6 Rev. Pass. Miles, Int'l (%, Y/Y Chg) (5.6%) 6.4% 2.3% 1.5% 3.2% 1.8% 1.7% 0.7% 2.6% 3.6% 3.5% Avail. Seat Miles, Int'l (units) 292.5 300.1 312.6 312.5 318.9 329.8 335.1 338.9 346.5 354.8 83.1 Avail. Seat Miles, Int'l (%, Y/Y Chg) (5.4%) 2.6% 4.2% (0.0%) 2.1% 3.4% 1.6% 1.1% 2.2% 2.4% 2.4% Load Factor, Int'l (%) 78.8% 81.7% 80.2% 81.4% 82.3% 81.0% 81.0% 80.7% 81.0% 81.9% 80.1% New Orders Aero Equip ($, NSA, bil.) 133.5 149.8 186.6 211.1 247.1 286.9 220.0 176.5 205.2 253.4 49.1 27.8 14.0 New Orders Aero Equip (%, AR, Y/Y Chg) (26.9%) 12.2% 24.6% 13.1% 17.1% 16.1% (23.3%) (19.8%) 16.3% 23.5% (6.7%) (53.0%) 13.5% Boeing Orders (units) 142 625 921 1,339 1,531 1,550 878 848 1,043 929 95 13 31 Airbus Orders (units) 271 570 1,738 914 1,619 1,456 1,139 949 1,229 831 62 151 33 16 Boeing Deliveries (units) 481 462 477 601 648 723 762 748 763 806 149 90 19 Airbus Deliveries (units) 498 516 525 588 626 629 635 688 718 800 162 227 69 42
Automotive 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
North American Auto Production (units, 000s) 8,557 11,910 13,126 15,434 16,177 17,030 17,495 17,837 17,064 16,952 NA NA NA NA North American Auto Production (%, Y/Y Chg) (32.0%) 39.2% 10.2% 17.6% 4.8% 5.3% 2.7% 2.0% (4.3%) (0.7%) NA NA NA NA
Agriculture 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
2-4 WD Trac. & Comb. Sales (units, 000s) 165.1 175.8 177.9 195.0 212.5 215.9 210.3 215.2 224.3 240.4 45.4 85.1 22.0 2-4 WD Trac. & Comb. Sales (%, AR, Y/Y Chg) (20.0%) 6.5% 1.2% 9.6% 9.0% 1.6% (2.6%) 2.3% 4.3% 7.1% 6.4% 3.1% (0.8%)
Construction 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
Housing Starts (units, SAAR, 000s) 442 471 434 537 620 647 713 785 852 872 864 834 838 Housing Starts (%, Y/Y Chg) (5.5%) 6.6% (7.9%) 23.6% 15.5% 4.2% 10.2% 10.1% 8.5% 2.4% (2.9%) (6.7%) (2.6%) Existing Home Sales (units, SAAR, mil.) 4.57 4.31 4.07 4.13 4.47 4.33 4.62 4.83 4.91 4.74 4.65 4.70 4.84 Existing Home Sales (%, Y/Y Chg) 7.9% (5.7%) (5.6%) 1.6% 8.3% (3.1%) 6.7% 4.3% 1.8% (3.4%) (5.0%) (1.9%) 1.0% 30-Year Fixed Mortgage Rate (%) 5.04% 4.69% 4.46% 3.65% 3.98% 4.17% 3.85% 3.65% 3.99% 4.54% 4.37% 4.00% 3.77% 3.62% Non-Residential Construction (1996$, SAAR, bil.) 344.5 260.7 257.0 301.9 312.9 362.2 414.6 447.0 445.0 460.3 467.1 460.5 456.4 Non-Residential Construction (%, SAAR, Y/Y Chg) (15.7%) (24.3%) (1.4%) 17.5% 3.6% 15.8% 14.5% 7.8% (0.5%) 3.4% 2.6% (0.1%) (2.7%) Construction Put In Place (1996$, SAAR, bil.) 907.0 807.8 787.7 849.6 906.2 1,007.7 1,129.1 1,211.6 1,267.5 1,307.5 1,290.2 1,297.6 1,288.8 Construction Put In Place (%, SAAR, Y/Y Chg) (12.0%) (10.9%) (2.5%) 7.9% 6.7% 11.2% 12.1% 7.3% 4.6% 3.1% (1.9%) (2.0%) (2.7%) F.W. Dodge Index Index 90 90 87 112 118 120 127 130 156 150 171 176 180
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September 2019
TABLE 1. END MARKET AND MACROECONOMIC DATA (Continued)
Oil & Gas 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
Baker & Hughes US Rig Count (units) 1,172 1,694 2,003 1,784 1,771 1,882 711 634 930 1,078 1,023 969 955 926 Baker & Hughes US Rig Count (%, Y/Y Chg) (34.2%) 44.5% 18.2% (10.9%) (0.7%) 6.3% (62.2%) (10.8%) 46.7% 15.9% 3.4% (8.2%) (9.0%) (11.8%) Baker & Hughes Canada Rig Count (units) 313 398 429 353 372 375 144 209 205 141 151 114 121 142 Baker & Hughes Canada Rig Count (%, Y/Y Chg) (13.3%) 27.2% 7.8% (17.7%) 5.4% 0.8% (61.6%) 45.1% (1.9%) (31.2%) (30.7%) (16.8%) (40.7%) (35.5%) Baker & Hughes Int'l Rig Count (units) 1,024 1,118 1,180 1,253 1,335 1,313 1,095 929 954 1,025 1,039 1,138 1,162 1,138 Baker & Hughes Int'l Rig Count (%, Y/Y Chg) (5.0%) 9.2% 5.5% 6.2% 6.5% (1.6%) (16.6%) (15.2%) 2.7% 7.4% 6.9% 18.7% 16.5% 12.9%
Semiconductor 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1Q19 2Q19 Jul-19 Aug-19
Semi Billings: WW (units, 000s) 219,692 295,304 300,941 291,089 303,344 333,591 337,260 334,676 405,084 468,781 100,600 98,270 33,370 Semi Billings: WW (%, Y/Y Chg) 261.8% 34.4% 1.9% (3.3%) 4.2% 10.0% 1.1% (0.8%) 21.0% 15.7% (9.8%) (15.0%) (15.5%) Semi Billings: Americas (units, 000s) 37,222 52,901 55,383 53,975 60,497 68,252 70,117 64,710 85,781 103,701 19,610 17,710 6,060 Semi Billings: Americas (%, Y/Y Chg) 314.0% 42.1% 4.7% (2.5%) 12.1% 12.8% 2.7% (7.7%) 32.6% 20.9% (21.5%) (28.4%) (27.7%) Semi Billings: Europe (units, 000s) 29,263 37,669 37,901 33,386 34,532 37,427 34,487 32,646 37,730 42,848 10,150 10,000 3,260 Semi Billings: Europe (%, Y/Y Chg) 220.2% 28.7% 0.6% (11.9%) 3.4% 8.4% (7.9%) (5.3%) 15.6% 13.6% (2.9%) (9.2%) (8.9%) Semi Billings: Japan (units, 000s) 38,304 46,115 43,265 41,429 35,073 35,034 31,302 32,000 36,134 39,861 9,010 8,710 2,980 Semi Billings: Japan (%, Y/Y Chg) 218.1% 20.4% (6.2%) (4.2%) (15.3%) (0.1%) (10.7%) 2.2% 12.9% 10.3% (6.1%) (13.2%) (12.1%) Semi Billings: Asia Pacific (units, 000s) 114,904 158,619 164,393 162,299 173,241 192,878 201,353 205,320 245,440 280,071 61,840 61,850 21,070 Semi Billings: Asia Pacific (%, Y/Y Chg) 276.0% 38.0% 3.6% (1.3%) 6.7% 11.3% 4.4% 2.0% 19.5% 14.1% (6.9%) (11.5%) (12.7%)
Sources: Airbus, Airline Transport Association, Baker Hughes, Baseline, Bloomberg, Boeing Co., Equipment Manufacturers Institute, ACT Research, Association for Manufacturing Technology, SEMI, Infrastructure
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September 2019
SECTION 2. CALENDAR, COMMODITIES AND CURRENCY
UPCOMING EVENTS
MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY September 9, 2019 September 10, 2019 September 11, 2019 September 12, 2019 September 13, 2019 15:00 Consumer Credit 08:30 PPI 08:30 CPI 08:30 Retail Sales
10:00 Wholesale Inventories 08:30 Initial Claims 10:00 Business Inventories
10:00 Michigan Sentiment
September 16, 2019 September 17, 2019 September 18, 2019 September 19, 2019 September 20, 2019 08:30 Empire State Mfg. 09:15 Industrial Production 08:30 Housing Starts 08:30 Initial Claims
09:15 Capacity Utilization 08:30 Building Permits 08:30 Philadelphia Fed Index
14:00 FOMC Rate Decision 10:00 Existing Home Sales
10:00 Leading Indicators
September 23, 2019 September 24, 2019 September 25, 2019 September 26, 2019 September 27, 2019 09:00 FHFA Housing Price Index 10:00 New Home Sales 08:30 Initial Claims 08:30 Personal Income
10:00 Consumer Confidence 10:00 Pending Home Sales 08:30 Personal Spending
08:30 Durable Orders
10:00 Michigan Sentiment
September 30, 2019 October 1, 2019 October 2, 2019 October 3, 2019 October 4, 2019 09:45 Chicago PMI 10:00 ISM Manufacturing Index 08:30 Initial Claims 08:30 Nonfarm Payrolls
10:00 Construction Spending 10:00 Factory Orders 08:30 Avg. Hourly Earnings
08:30 Unemployment Rate
October 7, 2019 October 8, 2019 October 9, 2019 October 10, 2019 October 11, 2019 15:00 Consumer Credit 08:30 PPI 10:00 Wholesale Inventories 08:30 CPI 10:00 Michigan Sentiment
08:30 Initial Claims
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September 2019
TABLE 2. COMMODITY PRICES
Energy 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Jul-19 Aug-19
Crude Oil ($ per barrel) $35.24 $47.78 $44.85 $50.01 $52.47 $47.90 $49.69 $57.40 $63.77 $69.92 $70.60 $53.88 $57.05 $58.63 $58.58 $55.10 Crude Oil (%, Y/Y Chg) (27.4%) (20.1%) (4.9%) 19.7% 48.9% 0.2% 10.8% 14.8% 21.5% 46.0% 42.1% (6.1%) (10.5%) (16.2%) (14.8%) (21.1%) Natural Gas ($ per MMBtu) $1.94 $2.30 $3.03 $2.79 $3.11 $3.03 $3.05 $3.09 $2.94 $2.87 $2.93 $3.70 $2.85 $2.52 $2.28 $2.34 Natural Gas (%, Y/Y Chg) (27.7%) (13.5%) 14.8% 32.1% 60.2% 31.7% 0.7% 10.9% (5.6%) (5.3%) (3.9%) 19.7% (3.0%) (12.3%) (19.0%) (20.9%)
Base Metals 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Jul-19 Aug-19
Nickel ($ per pound) $3.82 $4.13 $4.63 $4.77 $4.63 $4.17 $4.90 $5.35 $6.14 $6.63 $5.94 $5.03 $5.81 $5.60 $6.51 $8.10 Nickel (%, Y/Y Chg) (38.9%) (28.5%) (0.6%) 14.5% 21.4% 0.9% 5.9% 12.3% 32.5% 59.0% 21.0% (6.1%) (5.3%) (15.4%) 4.3% 37.3% Copper ($ per pound) $2.14 $2.21 $2.17 $2.45 $2.69 $2.61 $2.95 $3.14 $3.12 $3.06 $2.80 $2.75 $2.90 $2.75 $2.68 $2.57 Copper (%, Y/Y Chg) (19.2%) (19.4%) (7.6%) 12.1% 25.6% 18.5% 35.9% 28.3% 16.2% 17.0% (5.2%) (12.3%) (7.1%) (10.0%) (6.0%) (5.2%) Aluminum ($ per pound) $0.70 $0.73 $0.74 $0.78 $0.86 $0.87 $0.93 $0.97 $0.96 $1.01 $0.94 $0.87 $0.86 $0.81 $0.81 $0.78 Aluminum (%, Y/Y Chg) (14.4%) (7.7%) 3.6% 17.3% 22.0% 18.6% 25.7% 24.3% 12.7% 16.2% 0.9% (10.4%) (11.1%) (20.2%) (13.8%) (18.9%) Silver ($ per troy ounce) $14.87 $17.52 $19.39 $16.78 $18.05 $17.05 $17.02 $16.70 $16.71 $16.29 $14.92 $14.64 $15.60 $14.94 $16.26 $18.38 Silver (%, Y/Y Chg) (11.7%) 8.0% 32.4% 15.8% 21.4% (2.6%) (12.2%) (0.5%) (7.4%) (4.5%) (12.4%) (12.3%) (6.6%) (8.3%) 4.8% 26.4%
Various 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Jul-19 Aug-19
Steel (Hot Rolled) ($ per ton) $413 $579 $590 $524 $629 $621 $623 $627 $756 $889 $889 $797 $694 $614 $553 $596 Steel (Hot Rolled) (%, Y/Y Chg) (21.5%) 26.5% 28.8% 34.4% 52.5% 7.1% 5.6% 19.8% 20.2% 43.3% 42.9% 27.1% (8.2%) (30.9%) (39.8%) (33.2%) Steel (Cold Rolled) ($ per ton) $560 $766 $803 $748 $833 $820 $799 $808 $898 $1,012 $991 $900 $817 $761 $710 $747 Steel (Cold Rolled) (%, Y/Y Chg) (15.8%) 31.7% 38.9% 44.1% 48.7% 7.1% (0.5%) 8.0% 7.8% 23.3% 24.0% 11.4% (9.0%) (24.8%) (29.6%) (25.3%) Gold (London PM) ($ per troy ounce) $1,195 $1,273 $1,325 $1,199 $1,238 $1,258 $1,287 $1,280 $1,329 $1,290 $1,204 $1,237 $1,313 $1,329 $1,428 $1,528 Gold (London PM) (%, Y/Y Chg) (2.1%) 7.8% 18.7% 10.2% 3.6% (1.1%) (2.8%) 6.8% 7.4% 2.5% (6.5%) (3.4%) (1.2%) 3.0% 16.9% 27.1%
Agricultural 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Jul-19 Aug-19
Corn ($ per bushel) $3.51 $3.69 $3.06 $3.31 $3.44 $3.46 $3.27 $3.17 $3.50 $3.52 $3.20 $3.39 $3.39 $3.85 $3.98 $3.54 Corn (%, Y/Y Chg) (1.9%) 1.8% (14.0%) (8.0%) (2.1%) (6.1%) 6.6% (4.4%) 1.6% 1.8% (2.1%) 7.1% (3.1%) 9.2% 17.4% 13.1% Soybean ($ per bushel) $8.70 $10.66 $9.66 $9.84 $9.67 $9.07 $9.37 $9.32 $9.87 $9.37 $8.09 $8.19 $8.45 $8.30 $8.42 $8.28 Soybean (%, Y/Y Chg) (10.9%) 8.6% 5.3% 13.0% 11.1% (14.9%) (3.0%) (5.2%) 2.1% 3.3% (13.7%) (12.1%) (14.4%) (11.4%) (3.4%) 6.0% Wheat ($ per bushel) $4.63 $4.64 $3.76 $3.92 $4.20 $4.58 $4.36 $4.25 $4.69 $5.03 $5.12 $5.21 $5.06 $5.16 $4.72 $4.53 Wheat (%, Y/Y Chg) (9.5%) (9.3%) (15.2%) (9.4%) (9.3%) (1.3%) 15.9% 8.5% 11.6% 9.9% 17.3% 22.6% 7.9% 2.5% (15.3%) (10.3%)
Sources: Baseline, Bloomberg
TABLE 3. FOREIGN CURRENCY VALUATION
Source: United States Federal Reserve
Foreign Exchange 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Jul-19 Aug-19
US $ per Euro $1.102 $1.130 $1.116 $1.079 $1.066 $1.100 $1.175 $1.178 $1.229 $1.192 $1.163 $1.140 $1.135 $1.124 $1.121 $1.112
(%, Qtr-Qtr Chg) 0.6% 2.5% (1.2%) (3.3%) (1.2%) 3.2% 6.8% 0.2% 4.3% (3.0%) (2.4%) (1.9%) (0.4%) (1.0%) - -
(%, YOY Chg) (2.2%) 2.1% 0.4% (1.5%) (3.3%) (2.6%) 5.3% 9.2% 15.3% 8.3% (1.0%) (3.2%) (7.6%) (5.7%) (4.0%) (3.7%)
US $ per UK Pound $1.431 $1.435 $1.312 $1.242 $1.240 $1.280 $1.309 $1.328 $1.392 $1.360 $1.303 $1.286 $1.303 $1.285 $1.246 $1.215
(%, Qtr-Qtr Chg) (5.7%) 0.3% (8.5%) (5.3%) (0.2%) 3.2% 2.3% 1.4% 4.8% (2.2%) (4.2%) (1.4%) 1.3% (1.4%) - -
(%, YOY Chg) (5.5%) (6.4%) (15.3%) (18.1%) (13.4%) (10.8%) (0.3%) 6.9% 12.2% 6.3% (0.4%) (3.2%) (6.4%) (5.6%) (5.4%) (5.6%)
US $ per Brazilian Real $0.256 $0.285 $0.308 $0.303 $0.318 $0.312 $0.316 $0.308 $0.308 $0.278 $0.253 $0.262 $0.265 $0.255 $0.264 $0.248
(%, Qtr-Qtr Chg) (1.4%) 11.2% 8.0% (1.5%) 4.8% (2.1%) 1.5% (2.7%) 0.1% (9.9%) (8.8%) 3.6% 1.2% (3.8%) - -
(%, YOY Chg) (27.1%) (12.4%) 8.6% 16.7% 24.1% 9.2% 2.7% 1.4% (3.2%) (10.9%) (20.0%) (14.8%) (13.8%) (8.0%) 1.1% (2.4%)
Yen per US $ 115.30 107.88 102.40 109.41 113.61 111.11 110.99 112.88 108.30 109.14 111.51 112.76 110.18 109.90 108.24 106.21
(%, Qtr-Qtr Chg) (5.0%) (6.4%) (5.1%) 6.8% 3.8% (2.2%) (0.1%) 1.7% (4.1%) 0.8% 2.2% 1.1% (2.3%) (0.3%) - -
(%, YOY Chg) (3.2%) (11.1%) (16.2%) (9.9%) (1.5%) 3.0% 8.4% 3.2% (4.7%) (1.8%) 0.5% (0.1%) 1.7% 0.7% (2.9%) (4.3%)
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September 2019
COMMODITIES
CHART 2. COPPER
($/lb)
Sources: Baseline, Bloomberg
CHART 3. NATURAL GAS
($/btu)
Sources: Baseline, Bloomberg
CHART 4. CRUDE OIL
($/barrel)
Sources: Baseline, Bloomberg
CHART 5. STEEL PRICING ($/short ton)
Sources: Baseline, Bloomberg
CHART 6. ALUMINUM ($/lb)
Sources: Baseline, Bloomberg
CHART 7. COAL PRICING ($/ton)
Sources: Baseline, Bloomberg
BrentWTI Spread
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September 2019
CURRENCIES
CHART 8. EURO PER U.S. DOLLAR
Source: U.S. Federal Reserve
CHART 9. POUND PER U.S. DOLLAR
Source: U.S. Federal Reserve
CHART 10. JAPANESE YEN PER U.S. DOLLAR
Source: U.S. Federal Reserve
CHART 11. CHINESE RMB PER U.S. DOLLAR
Source: U.S. Federal Reserve
CHART 12. INDIAN RUPEE PER U.S. DOLLAR
Source: U.S. Federal Reserve
CHART 13. BRAZILIAN REAL PER U.S. DOLLAR
Source: U.S. Federal Reserve
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September 2019
SECTION 3. END MARKET DISCUSSIONS
COMMERCIAL AEROSPACE
CHART 14. COMMERCIAL AEROSPACE ORDERS
(Boeing and Airbus Monthly Orders)
Sources: Boeing and Airbus; Airbus orders not available 1990-1994
The International Air Transport Association (IATA) monthly passenger traffic results for July grew +3.6% y/y, decelerating from the growth of +5.1% in June, significantly below the long-term average (~+5.5%) and 2019 IATA forecast (~+5%), marking a soft start to the peak passenger demand season. According to the IATA, the slowdown observed in the passenger traffic data for July comes amidst weaker growth in several large economies, and a pick-up in global risk. During 1H19, Asia Pacific was a major contributor to the slowdown in RPK growth, while July’s soft outcome was driven by Europe and the Middle East (while Asia Pacific ticked up slightly in July). The IATA stated that the early signs of a modest lift in the upward trend in the seasonally-adjusted (SA) data in recent months have been unwound in July and the longer-term trend is still one of softening RPK growth. The growth rate of industry-wide ASK eased slightly in July, to 3.2% compared to 3.4% in June, the third consecutive month where capacity has grown slower than demand, as airlines continue to adapt to the softer business environment. Consequently, the industry-wide load factor posted another record-high outcome, at 85.7% in July, up from 84.4% in June. All regions except for Africa and the Middle East saw all-time high load factors for the month of July. Looking more closely at passenger demand, international demand was +2.7% y/y in July, below the +5.3% y/y in June. By region, Latin America led the way with +4.1% y/y, followed by Africa (+3.6%), Europe (+3.3%), Asia-Pacific (+2.7%), Middle East (+1.6%), and North America (+1.5%). International capacity grew by 2.4% in July, down from 3.4% in June, and load factor increased to 85.3% in July vs. 83.8% in June. On the domestic front, passenger demand growth stood at +5.2% y/y in July, above the +4.7% y/y in June. Growth was driven by China (+11.7%), India (+8.9%), Russia (+6.8%), Japan (+4.7%), and the U.S. (+3.8%), with Australia (-0.9%) and Brazil (-6.1%) registering y/y declines this month. Domestic capacity grew by +4.7% y/y in July, above the +3.1% y/y in June. Load factor increased to 86.5% in July from the 85.5% in June.
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September 2019
Turning to freight, y/y demand was down 3.2% in July vs. 4.8% in June, marking the 9th consecutive month of y/y decline in air freight volumes. The weakness in freight volumes remains broad-based across regions, with the largest falls coming from the Middle East and Asia-Pacific. According to the IATA, new tariff increases in the ongoing U.S.-China trade dispute, along with the temporary disruption to Hong Kong airport operations, increase the chances of a weaker data outturn in August. The IATA stated that the seasonally-adjusted (S.A.) series showed month-on-month improvement in July, but this is after the fall of comparable magnitude in June; hence, this month’s rise cannot be viewed as an indication of trend change. The IATA believes that based on the YTD outcome (-3.5% y/y) and the impact of further tariff increases scheduled to come into effect (leading to a more pronounced impact of the U.S.-China trade war in the remainder of FY19), it could lead to a decline in FTK in 2019 (after 2009). According to the IATA, the key demand drivers have become softer, asserted by the following: 1) persistent weakness in global trade and leading economic indicators (with further signs of moderation in the global macroeconomic backdrop) — global trade volumes continued to languish, and are currently 1.4% lower y/y after a short-lived improvement in recent months; 2) intensified trade dispute between China and the U.S.— additional tariff increases in the ongoing U.S.-China trade dispute, the YTD and trade volumes between the U.S. and China fell by 14% y/y; 3) the new export orders component of the global PMI, which has now fallen in month-on-month terms in 17 consecutive months, and has been below the 50-mark (i.e., territory normally associated with falling export orders) since September, eased further in July; June is the first time since February 2009 that new export orders in all the key countries are below the 50-mark, suggesting a possible structural slowdown in the underlying trend rather than a temporary weakening (bleak outlook for key markets, namely, Germany—steepest drop in new export orders since 2009, and South Korea—new export orders fell at their fastest rate in the last six years). Overall, freight decline was led by the Middle East (-5.5%), Asia-Pacific (-4.9%), North America (-2.1%), and Europe (-2.0%), while Africa (+10.9%) and Latin America (+3.0%) reported increases. Freight load factor was 45% in July, down from 45.4% in June, and capacity rose by 2.6% y/y (freight capacity exceeded that of demand for the seventeenth month in a row). Airbus received order for 16 aircraft order in August, lower than the 33 aircraft order received last month, but higher than the five aircraft order received in August 2018. Airbus delivered 42 aircraft during the month, lower than the 69 delivered a month ago and the 54 aircraft delivered a year ago. Boeing received an order for six aircraft in August, lower than the 31 aircraft order received last month and the 99 aircraft order received in August 2018. Boeing delivered 18 aircraft during the month, marginally lower than the 19 delivered a month ago and significantly lower than the 64 aircraft delivered a year ago. Boeing remains under pressure on account of the 737 MAX grounding and has announced that it will cut its 737 production rate from 52 to 42 per month as of mid-April. It could take months from when the 737 MAX gets back in the air for Boeing to reach the planned production rate of 57 per month. Further, in June, the U.S. Federal Aviation Administration discovered a new flaw in Boeing's 737 Max that could further delay its return to the skies.
CHART 15. OEM AEROSPACE BACKLOG
Sources: Boeing, Airbus, and KeyBanc Capital Markets Inc. estimates
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September 2019
TABLE 4. FUEL COST (Average)
Fuel Cost Oil Price
¢ Per gallon Y/Y % $ Per barrel Y/Y %
Jan 2015 47.33 -50.1% Feb 2015 50.73 -49.7% Mar 2015 47.85 -52.4% Apr 2015 54.63 -46.5% May 2015 59.37 -41.7% Jun 2015 59.83 -43.1% Jul 2015 50.93 -50.3% Aug 2015 42.89 -55.4% Sep 2015 45.47 -51.1% Oct 2015 46.25 -45.2% Nov 2015 42.92 -43.4% Dec 2015 37.33 -37.0% Jan 2016 31.78 -32.9% Feb 2016 30.62 -39.6% Mar 2016 37.96 -20.7% Apr 2016 41.13 -24.7% May 2016 46.8 -21.2% Jun 2016 48.84 -18.4% Jul 2016 44.8 -12.0% Aug 2016 44.8 4.5% Sep 2016 45.23 -0.5% Oct 2016 49.87 7.8% Nov 2016 45.87 6.9% Dec 2016 52.17 39.8% Jan 2017 52.61 65.5% Feb 2017 53.46 74.6% Mar 2017 49.67 30.8% Apr 2017 51.12 24.3% May 2017 48.54 3.7% Jun 2017 45.20 -7.5% Jul 2017 46.68 4.2% Aug 2017 48.06 7.3% Sep 2017 49.88 10.3% Oct 2017 51.69 3.6% Nov 2017 56.54 23.3% Dec 2017 57.95 11.1% Jan 2018 63.55 20.8% Feb 2018 62.16 16.3% Mar 2018 62.87 26.6% Apr 2018 66.33 29.8% May 2018 69.89 44.0% Jun 2018 67.32 48.9% Jul 2018 70.74 51.5% Aug 2018 67.85 41.2% Sep 2018 70.07 40.5% Oct 2018 70.76 36.9% Nov 2018 56.60 0.1% Dec 2018 48.68 -16.0% Jan 2019 51.38 -19.2% Feb 2019 55.01 -11.5% Mar 2019 58.17 -7.5% Apr 2019 63.88 -3.7% May 2019 60.77 -13.0% Jun 2019 54.71 -18.7% Jul 2019 57.54 -18.7%
Source: Air Transport Association
CHART 16. AVERAGE PRICES ($/BARREL): CRUDE OIL (SPOT) AND JET FUEL (PAID)
Source: Air Transport Association
TABLE 5. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE AEROSPACE MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Altra Industrial Motion Corp. AIMC 1% 1% NA 1%
AMETEK, Inc. AME 8% 8% 6% 5%
Circor International, Inc. CIR 7% 2% 5% 2%
Eaton Corporation ETN 3% 2% 2% 1%
EnPro Industries, Inc. NPO 5% 0% 0% 0%
ITT Corporation ITT 7% 3% 4% 2%
Kaman Corporation KAMN 10% 3% 19% 5%
Kennametal KMT 9% 0% 0% 0%
Parker-Hannif in PH 5% 5% 5% 5%
Park-Ohio Holdings Corp. PKOH 1% 0% 0% 0%
RBC Bearings ROLL 17% 15% 10% 11%
Regal Beloit Corp RBC 1% 1% NA NA
Rexnord Corporation RXN 3% 3% 1% 1%
Timken Company TKR 2% 2% 5% 1%
TriMas Corporation TRS 8% 10% 1% 1%
Company
Name
Ticker
Symbol
Commercial
(OE)
Commercial
(Aftermarket)
Military
(OE)
Military
(Aftermarket)
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September 2019
AGRICULTURE
CHART 17. UNITS OF TRACTORS & COMBINES SOLD
Source: Association of Equipment Manufacturers (AEM)
We think demand for agricultural equipment and related spending is expected to decrease in 2019. Farm equipment manufacturer Deere expects a net sales increase of ~4% y/y in FY19 (vs. prior guide of up ~5% y/y) vs. a 26% y/y increase in FY18, while AGCO is forecasting flat sales in FY19 (~2.0-2.5% pricing growth, and ~3.5% FX headwinds) vs. 12.6% y/y increase in FY18. AGRO expects flat sales across all regions in 2019. According to a recent flash report released by the Association of Equipment Manufacturers, total U.S. farm tractor sales decreased 0.1% y/y in July at 21,624 units, driven by a decrease in both 2WD farm tractor sales (-0.1% y/y) and 4WD farm tractor sales (-4.7% y/y). The decrease in 2WD farm tractor sales was driven by a 0.6% y/y decrease in <40 HP tractor sales and a 9.8% y/y decrease in 100+ HP tractor sales, partially mitigated by a 4.0% y/y increase in 40<100 HP tractor sales. Meanwhile, self-prop combines decreased 25.9% y/y to 415 units vs. 560 units last year. Related Company Outlook: Deere & Co. – During its fiscal 3Q19 earnings (August 16, 2019), Deere maintained its FY19 worldwide agriculture and turf retail sales guide to up ~2% y/y. By geography, the Company expects North America and Europe to be flat, South America to be up 0-5% y/y, and Asia to be flat to slightly down. Additionally, the Company guided FY19 Construction & Forestry sales to be up ~10% y/y vs. prior guide of up ~11% y/y. AGCO – During its fiscal 2Q19 earnings (July 30, 2019), AGCO lowered its 2019 outlook for worldwide agriculture sales. The Company expects sales to be flat in 2019 (~2.0-2.5% pricing growth, and ~3.5% FX headwinds) vs. up 2% y/y prior. By geography, management expects its retail tractor sales (in units) to be flat across all regions, including North America, South America, and Western Europe.
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September 2019
CHART 18. VALUE OF FARM MACHINERY & EQUIPMENT MANUFACTURING
Source: U.S. Census Bureau
TABLE 6. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE AGRICULTURE MARKET EXPOSURE
Note: Includes Agriculture, Construction, and Other Mobile Equipment. Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Actuant Corporation ATU 23% Lincoln Electric Holdings LECO 14%
Altra Industrial Motion Corporation AIMC 10% Parker-Hannifin PH 13%
Applied Industrial Technologies AIT 8% Park-Ohio Holdings Corp. PKOH 3%
Eaton Corporation ETN 7% Rexnord Corporation RXN 0%
Gates Industrial Corporation GTES 25% Helios Technologies HLIO 52%
Ingersoll-Rand Plc IR 0% Terex Corporation TEX 1%
Kennametal Inc. KMT 4% Timken Company TKR 18%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
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September 2019
AUTOMOTIVE
TABLE 7. NORTH AMERICAN LIGHT VEHICLE PRODUCTION AND FORECAST
North American Quarterly Production
Cars Light Trucks Total Light Vehicle MD & HD Truck Total Vehicle
Quarter Y/Y Y/Y Y/Y Y/Y Y/Y Ending Units % Chg Units % Chg Units % Chg Units % Chg Units % Chg
Mar-15 1,898,549 8% 2,525,635 5% 4,264,757 1% 136,661 18% 4,401,418 2% Jun-15 1,867,069 3% 2,622,604 1% 4,534,151 3% 148,120 12% 4,682,271 3% Sep-15 1,883,090 4% 2,520,907 3% 4,367,698 5% 143,846 5% 4,511,544 5% Dec-15 1,745,540 (1%) 2,368,312 3% 4,328,783 2% 130,784 (3%) 4,459,567 2% Mar-16 1,696,655 (11%) 2,368,433 (6%) 4,455,272 4% 126,828 (7%) 4,582,100 4% Jun-16 1,842,206 (1%) 2,691,153 3% 4,599,385 1% 127,386 (14%) 4,726,771 1% Sep-16 1,723,267 (8%) 2,726,409 8% 4,424,365 1% 105,772 (26%) 4,530,137 (2%) Dec-16 1,614,844 (7%) 2,802,417 18% 4,357,663 1% 115,781 (11%) 4,473,444 (2%) Mar-17 1,484,816 (12%) 2,526,909 7% 4,527,561 2% 108,355 (15%) 4,635,916 (1%) Jun-17 1,620,121 (12%) 2,771,151 3% 4,457,011 (3%) 125,936 (1%) 4,582,947 (6%) Sep-17 1,558,659 (10%) 2,840,865 4% 3,970,125 (10%) 129,387 22% 4,099,512 (10%) Dec-17 1,413,994 (12%) 2,918,478 4% 4,109,460 (6%) 136,583 18% 4,246,043 (6%) Mar-18 1,323,701 (11%) 2,766,989 10% 4,379,076 (3%) 128,718 19% 4,507,794 (3%) Jun-18 N/A N/A N/A N/A 4,356,493 (2%) 143,527 14% 4,500,020 (2%) Sep-18 4,023,496 1% 152,716 18% 4,176,212 1% Dec-18 4,192,799 2% 152,929 12% 4,345,728 2% Mar-19 141,761 10% Jun-19 156,348 9%
Annual Production
Cars Light Trucks Total Light Vehicle MD & HD Truck Total Vehicle
Year Y/Y Y/Y Y/Y Y/Y Y/Y Ending Units % Chg Units % Chg Units % Chg Units % Chg Units % Chg
2001 7,154,687 (13%) 8,326,389 (7%) 15,481,076 (10%) 333,259 (33%) 15,814,335 (10%) 2002 7,347,916 3% 9,020,615 8% 16,368,531 6% 348,055 4% 16,716,586 6% 2003 6,624,692 (10%) 9,249,150 3% 15,873,842 (3%) 341,037 (2%) 16,214,879 (3%) 2004 6,346,968 (4%) 9,406,423 2% 15,753,391 (1%) 470,861 38% 16,224,252 0% 2005 6,523,591 3% 9,228,740 (2%) 15,752,331 (0%) 563,692 20% 16,316,023 1% 2006 6,860,839 5% 8,390,770 (9%) 15,251,609 (3%) 625,552 11% 15,877,161 (3%) 2007 6,475,498 (6%) 8,545,546 2% 15,021,044 (2%) 405,301 (35%) 15,426,345 (3%) 2008 6,189,479 (4%) 6,389,516 (25%) 12,578,995 (16%) 343,273 (15%) 12,922,268 (16%) 2009 3,969,080 (36%) 4,589,146 (28%) 8,558,226 (32%) 202,739 (41%) 8,760,965 (32%) 2010 5,084,330 28% 6,825,889 49% 11,940,602 40% 243,345 20% 12,183,947 39% 2011 5,624,558 11% 7,462,358 9% 13,125,852 10% 389,450 60% 13,515,302 11% 2012 6,956,179 24% 8,424,536 13% 15,434,340 18% 417,089 7% 15,851,429 17% 2013 7,106,013 2% 8,990,514 7% 16,176,984 5% 404,588 (3%) 16,581,572 5% 2014 7,143,149 1% 9,738,436 8% 17,029,570 5% 521,023 29% 17,550,593 6% 2015 7,394,248 4% 10,037,457 3% 17,495,389 3% 559,411 7% 18,054,800 3% 2016 6,876,972 (7%) 10,588,412 5% 17,836,685 2% 475,767 (15%) 18,312,452 1% 2017 5,916,475 (14%) 11,297,483 7% 16,915,672 (5%) 520,624 9% 17,436,296 (5%) 2018 16,951,864 0% 577,890 11% 17,529,754 1%
Sources: Ward's AutoInfoBank; KeyBanc Capital Markets Inc. estimates
August’s light vehicle SAAR of 16.97M exceeded expectations (consensus 16.5M-16.8M) and rebounded from July’s 16.82M. Our Auto team slightly raised its full-year SAAR estimate to 16.9M from 16.8M.
TABLE 8. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE AUTOMOTIVE MARKET EXPOSURE
Note: Includes Automotive Components, Automotive Manufacturing (Factory Floor), and Automotive Service. Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Actuant Corporation ATU 4% Milacron Holdings Corp. MCRN 23%
Colfax Corporation CFX 0% NN, Inc. NNBR 5%
Eaton Corporation ETN 8% Nordson Corporation NDSN 9%
EnPro Industries, Inc. NPO 7% Park-Ohio Holdings PKOH 40%
Gates Industrial Corporation GTES 42% Parker-Hannifin PH 7%
Graco Inc. GGG 16% WABCO Holdings Inc. WBC 6%
ITT Corporation ITT 35% Timken Company TKR 15%
Kennametal KMT 13% TriMas Corporation TRS 2%
Lincoln Electric Holdings LECO 8%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
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September 2019
CONSTRUCTION (NON-RESIDENTIAL)
CHART 19. NON-RESIDENTIAL CONSTRUCTION
Source: U.S. Department of Commerce
Non-residential construction spending, as reported by the U.S. Census Bureau, was up 0.1% y/y in July, but down 0.3% sequentially. For July, there were 11 increases on a y/y basis, including Lodging (+7.3%), Office (+6.0%), Health Care (+5.5%), Public Safety (+11.7%), Transportation (+5.2%), Power (+0.1%), Highway and Street (+2.3%), Sewage and Waste Disposal (+19.2%), Water Supply (+7.6%), Conservation and Development (+8.4%), and Manufacturing (+3.3%). On a y/y basis, the decreases in July included Commercial (-16.5%), Educational (-4.6%), Religious (-18.4%), Amusement and Recreation (-4.2%), and Communication (-4.9%). The Architectural Billings Index (ABI), published by the American Institute of Architects (AIA) and often looked at as a leading indicator of construction activity, increased in July. The index came in at 50.1 (a reading above 50.0 indicates an increase in billings), up from 49.1 in the previous month and 50.2 in May. By geography, only one of the four regions within the U.S. reported sub-readings above 50.0 in July (West 51.2 vs. 49.3 in June, South 48.3 vs. 51.9, Northeast 48.3 vs. 46.1, and Midwest was flat sequentially at 48.9). Additionally, one of the four sectors posted a sub-reading above 50.0 in July (Multi-Family Residential 50.6, Commercial/Industrial 49.2, Mixed Practice 48.9, and Institutional 49.8). We note the new project inquiry index increased to 54.9 from 52.8 in June. However, the score for design contracts declined to 49.0 in July vs. 50.3 in June. As per AIA Chief Economist Kermit Baker, “The data is not the same as what we saw leading up to the last economic downturn but the continued, slowing across the board will undoubtedly impact architecture firms and the broader construction industry in the coming months. A growing number of architecture firms are reporting that the ongoing volatility in the trade situation, the stock market, and interest rates are causing some of their clients to proceed more cautiously on current projects.”
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September 2019
CHART 20. VALUE OF PUBLIC CONSTRUCTION
Source: U.S. Department of Commerce
CHART 21. ABI 3-MONTH MOVING AVERAGE LAGGED NINE MONTHS VS. PRIVATE NON-RESIDENTIAL CONSTRUCTION SPENDING
Sources: U.S. Census Bureau, Construction Spending put in place, The American Institute of Architects Architectural Billings Index, KeyBanc Capital Markets Inc. estimates
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
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September 2019
TABLE 9. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE COMMERCIAL CONSTRUCTION MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc.
Actuant Corporation ATU 0% Oshkosh Corp OSK 35%
Altra Holdings Inc. AIMC 0% Parker-Hannif in Corporation PH 4%
A.O. Smith AOS 11% Pentair plc PNR 21%
Colfax Corporation CFX 0% Regal Beloit Corp RBC 13%
Eaton Corporation ETN 21% Rexnord Corporation RXN 29%
Generac Holdings Inc. GNRC 0% Terex Corporation TEX 60%
Graco Inc. GGG 17% Timken Company TKR 5%
Ingersoll-Rand IR 47% Trinity Industries, Inc. TRN 11%
Kennametal Inc. KMT 5% TriMas Corporation TRS 10%
Lennox International LII 27% Welbilt, Inc. WBT 12%
Lincoln Electric Holdings LECO 9% Watsco, Inc. WSO 14%
Middleby Corporation MIDD 15% Watts Water Technologies, Inc. WTS 65%
Milacron Holdings Corp. MCRN 3% WESCO International, Inc. WCC 30%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
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September 2019
CONSTRUCTION (RESIDENTIAL)
CHART 22. HOUSING STARTS VS. 30-YEAR MORTGAGE RATE
Sources: U.S. Department of Commerce and Fannie Mae
CHART 23. EXISTING HOME SALES
Sources: The National Association of Realtors and Fannie Mae
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September 2019
Housing starts in July increased 0.6% y/y, but decreased 4% sequentially (SAAR of 1,191,000). The marginal y/y increase was attributed to growth in the single-family vertical (+1.9%), partially written off by a decline in the multi-family vertical (-4.7%), while the sequential decline was attributed to significant weakness in the multi-family vertical (-17.2%), offsetting strength in single-family (+1.3%). Building permits in July increased 1.5% y/y and 8.4% sequentially. The y/y increase was largely attributed to an increase in the multi-family vertical (+11.9%), partially written off by declines in single-family (-3.8%). While the permits data finished above last month and year, there are some prevailing supply-side dynamics (e.g., rising labor and lumber costs; supply expanding) that continue to pressure the current environment, especially within the multi-family vertical. Builder Sentiment index in August rose 1 point to 66 (including current sales conditions and buyer traffic both up 2 points, but sales expectations over the next six-month period down 1 point). This represents the 63rd month (out of 68) dating back to January 2014 that the Builder Sentiment read above 50, reflective of the industry’s increased new construction and home sales, in conjunct ion with lower mortgage rates. That said, there remains concern among builders over rising material prices, which is weighing on housing affordability. Total existing home sales in July increased 0.6% y/y and 2.5% sequentially. Sales of existing single-family homes increased 1% y/y and 2.8% sequentially. Existing condos and co-ops also declined 3.3% y/y, but were “flat” sequentially. The average price of a single-family (existing) home increased +3.2% y/y to $319,100.
TABLE 10. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE RESIDENTIAL CONSTRUCTION MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
A.O. Smith AOS 52% Oshkosh Corp OSK 5%
Eaton Corporation ETN 6% Parker-Hannifin PH 3%
Generac Holdings Inc. GNRC 52% Pentair, Inc. PNR 56%
Graco Inc. GGG 28% Regal-Beloit Corporation RBC 16%
Ingersoll-Rand IR 14% Rexnord Corporation RXN 5%
Lennox International LII 61% Terex Corporation TEX 7%
Lincoln Electric Holdings LECO 2% Watsco Inc. WSO 81%
Milacron Holdings Corp. MCRN 5% Watts Water Technologies WTS 35%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 22 of 37
September 2019
CONSTRUCTION EQUIPMENT
CHART 24. CATERPILLAR NORTH AMERICAN DEALER SALES
Source: CAT website
Caterpillar (CAT) global machine retail sales increased 4% y/y in July. By geography, North America monthly dealer sales increased 9% y/y and Latin America increased 20% y/y, partially offset by a 6% y/y decrease in Asia-Pacific and a 1% y/y decrease in EAME.
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September 2019
GENERAL INDUSTRIAL
CHART 25. INSTITUTE OF SUPPLY MANAGEMENT (ISM) PURCHASING MANAGERS’ INDEX (PMI)
Source: Institute of Supply Management
Economic activity in the manufacturing sector decreased in August with a reading of 49.1%, down 210 bps from the July reading of 51.2%, mainly due to decreases in New Orders, Production, Employment, Suppliers Deliveries, Customers’ Inventories, New Export Orders, and Imports. PMI readings above 43.3% over a period of time generally indicate expansion in the overall economy; the reading has been above that level for 123 consecutive months. Nine of the 18 manufacturing industries reported growth, including Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; and Chemical Products. However, the nine industries that experienced contraction included Apparel, Leather & Allied Products; Fabricated Metal Products; Transportation Equipment; Primary Metals; Plastics & Rubber Products; Paper Products; and Electrical Equipment, Appliances & Components. With regard to the index components, seven of the 10 segments reported negative moves sequentially, including New Orders (47.2 vs. 50.8, down 360 bps), Production (49.5 vs. 50.8, down 130 bps), Employment (47.4 vs. 51.7, down 430 bps), Supplier Deliveries (51.4 vs. 53.3, down 190 bps), Customers’ Inventories (44.9 vs. 45.7, down 80 bps), New Export Orders (43.3 vs. 48.1, down 480 bps) , and Imports (46.0 vs. 47.0, down 100 bps). Positive sequential moves were seen in Inventories (49.9 vs. 49.5, up 40 bps), Prices (46.0 vs. 45.1, up 90 bps), and Backlog of Orders (46.3 vs. 43.1, up 320 bps).
CHART 26. CAPACITY UTILIZATION
Source: Federal Reserve
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Seasonally-adjusted capacity utilization, which measures the percentage of plants in use, decreased 30 bps sequentially to 77.5% in July, which was below the consensus expectations of 77.8%. Additionally, the utilization rate was down 130 bps y/y. Manufacturing utilization, which comprises of ~79% of the index, decreased 40 bps sequentially to 75.4%. The utilization rate for durable manufacturing decreased 30 bps sequentially to 75.6%, while the non-durable manufacturing utilization rate decreased 50 bps sequentially at 76.1%. Outside of manufacturing, the mining utilization rate decreased 200 bps sequentially to 89.2%, while uti lities group utilization increased 210 bps sequentially to 76.6% in July.
CHART 27. INDUSTRIAL PRODUCTION INDEX (1997=100, SA, Y/Y Percent Change)
Source: Federal Reserve
According to the most recent report from the Federal Reserve, industrial output came in at 109.2 in July vs. 109.4 in June, which was below the consensus of 109.5. Manufacturing production (which comprises ~78% of the index) decreased 0.2% sequentially in July (vs. down 0.4% in June). Within Manufacturing, both durable goods and non-durable goods production decreased sequentially by 0.2% and 0.6%, respectively, in July. Industry groups that experienced sequential decrease included Wood Products (-1.1%); Nonmetallic Mineral Products (-1.1%); Fabricated Metal Products (-1.0%); Machinery (-1.2%); Electrical Equip., Appliances, and Components (-0.5%); Motor Vehicles and Parts (-0.2%); Food, Beverage, and Tobacco Products (-0.5%); Textile and Product Mills (-1.4%); Printing and Support (-1.0%); Petroleum and Coal Products (-0.2%); Chemicals (-0.4%); and Plastics and Rubber Products (-1.6%). Outside of manufacturing, Mining Production decreased 1.8% sequentially in July, while Utilities Production increased 3.1% sequentially. That said, total industrial production increased 0.5% y/y.
CHART 28. INVENTORY-TO-SALES RATIO
Source: U.S. Census Bureau
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September 2019
The inventories-to-sales ratio, which measures how long it would take to sell all inventories at current prices, came in at 1.39 in June vs. 1.40 in the previous month. According to the U.S. Census Bureau’s latest data release, total seasonally-adjusted business sales increased 0.1% sequentially, estimated at $1.460T (up 1.3% y/y), whereas total seasonally-adjusted business inventories came in flat sequentially at $2.036T (up 5.2% y/y). The rolling 12-month average inventory-to-sales ratio came in flat sequentially at 1.37 in June. The sequential increase in business sales was driven by increases in Manufacturers’ sales (+0.4%) and Retailers’ sales (+0.3%), partially offset by a decrease in Merchant Wholesalers’ sales (-0.3%). Additionally, the sequential increase in business inventories was primarily driven by a 0.2% increase in Manufacturers’ inventories, partially offset by a 0.3% decrease in Retailers’ inventories, while Merchant Wholesalers’ inventories came in flat sequentially. June’s inventory-to-sales ratio by category was 1.37 for Manufacturers (vs. 1.38 in May), 1.45 for Retailers (vs. 1.46 in May), and 1.36 for Merchant Wholesalers (unchanged sequentially).
TABLE 11. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE GENERAL INDUSTRIAL MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Actuant Corporation ATU 0% Lincoln Electric Holdings LECO 31%
Altra Holdings Inc. AIMC 33% Milacron Holdings Corp. MCRN 18%
AMETEK, Inc. AME 8% MRC Global Inc. MRC 14%
Applied Industrial Technologies AIT 25% NN, Inc. NNBR 15%
Colfax Corporation CFX 41% Nordson Corporation NDSN 11%
Eaton Corporation ETN 11% NOW Inc. DNOW 10%
EnPro Industries, Inc. NPO 15% Parker-Hannif in PH 20%
Federal Signal FSS 14% Park-Ohio Holdings Corp. PKOH 20%
Flow serve Corporation FLS 23% Pentair, Inc. PNR 23%
Gates Industrial Corporation GTES 28% Regal-Beloit Corporation RBC 50%
Graco Inc. GGG 18% Rexnord Corporation RXN 23%
Harsco Corporation HSC 2% RBC Bearings Incorporated ROLL 17%
Ingersoll-Rand IR 13% Helios Technologies HLIO 22%
ITT Corporation ITT 32% Timken Company TKR 20%
Kaman Corp. KAMN 65% TriMas Corporation TRS 43%
Kennametal Inc. KMT 34% WESCO International, Inc. WCC 33%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 26 of 37
September 2019
OIL & GAS
CHART 29. NORTH AMERICAN AND INTERNATIONAL RIG COUNTS
Source: Baker Hughes
According to Baker Hughes, August’s average U.S. rig count was down (-3% vs. July) to 926. The U.S. rig count now stands 124 rigs below the prior year levels, largely due to lower oil prices, averaging around $54.93/barrel in August 2019 (-19% y/y). On a weekly basis, the end of August finished lower y/y (down 144 rigs; down 1.3% w/w). The most recent weekly results showed a decrease in land (down 11 rigs vs. prior week) and inland water (down one rig vs. prior week), while offshore was “flat” w/w (at 28 rigs). By commodity, oil held an 82-18 share advantage vs. gas. The International rig count decreased sequentially in August to 1,138 rigs (+12.9% y/y). By region, LatAm (-3.5%, down seven rigs), Europe (-3.5%, down seven rigs), the Middle East (-1.9%, down eight rigs), and Asia-Pacific (-2.7%, down six rigs) decreased sequentially, while Canada (+17.4%, up 21 rigs) and Africa (+3.6%, up four rigs) increased sequentially.
TABLE 12. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE OIL & GAS MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Actuant Corporation ATU 19% Kennametal Inc. KMT 12%
Altra Holdings Inc. AIMC 8% Lincoln Electric Holdings LECO 14%
AMETEK, Inc. AME 10% MRC Global Inc. MRC 80%
Applied Industrial Technologies AIT 10% Now Inc. DNOW 90%
Circor International, Inc. CIR 37% Parker-Hannif in PH 6%
Colfax Corporation CFX 13% Park-Ohio Holdings PKOH 3%
Eaton Corporation ETN 4% Pentair, Inc. PNR 0%
EnPro Industries, Inc. NPO 8% RBC Bearings ROLL 3%
Flow serve Corporation FLS 36% Regal-Beloit Corporation RBC 3%
Gates Industrial Corporation GTES 5% Rexnord Corporation RXN 0%
Generac Holdings Inc. GNRC 0% Timken Company TKR 7%
Harsco Corporation HSC 9% TriMas Corporation TRS 22%
Ingersoll-Rand IR 0% Trinity Industries, Inc. TRN 12%
ITT Corporation ITT 10%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 27 of 37
September 2019
SEMICONDUCTOR
CHART 30. GLOBAL SEMICONDUCTOR SHIPMENTS AND BOOKINGS VS. BILLINGS
Source: Semiconductor Equipment and Materials International (SEMI)
Preliminary three-month rolling average billings in July came in at $2.03B, which was up 0.4% sequentially, but down 14.5% y/y (vs. down 18.4% y/y in June). We note this year the demand for semiconductor equipment has been driven by leading-edge logic and foundry, offset by weak market sentiment for memory segment. The Semiconductor Industry Association (SIA) reported that global semiconductor sales increased 1.7% sequentially in July, but decreased 15.5% y/y. On a sequential basis, July sales increase was primarily driven by increases in Americas (+2.5%), Japan (+0.7%), China (+1.1%), and Asia-Pacific/All Other (+3.1%), partially offset by a decrease in Europe (-0.5%). On a y/y basis, July’s sales decreased across all regions (Americas -27.8%, Europe -8.6%, Japan -12.0%, China -14.1%, and Asia-Pacific/All Other -11.0%).
CHART 31. WORLDWIDE SEMICONDUCTOR SALES
Source: Semiconductor Industry Association (SIA)
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September 2019
TABLE 13. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE SEMICONDUCTOR MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
AMETEK, Inc. AME 6% Parker-Hannifin PH 7%
Milacron Holdings Corp. MCRN 9% RBC Bearings ROLL 4%
Nordson Corporation NDSN 25% Timken Company TKR 5%
EnPro Industries, Inc. NPO 7%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 29 of 37
September 2019
MEDIUM/HEAVY-DUTY TRUCK
CHART 32. CLASS 8 TRUCK BUILDS & BACKLOG (Three-Month Rolling Average)
Sources: America’s Commercial Transportation Research Co. (A.C.T.) and KeyBanc Capital Markets Inc. estimates
ACT Research reported NAFTA Class 8 preliminary net orders decreased 79% y/y (+5.8% m/m) to 10,900, down 69.4% y/y YTD, and with seasonal adjustments applied, August’s Class 8 order volumes increased by 1,600 to 12,500 units (-79.7% y/y and +2.8% m/m). Fraying freight market and rate conditions, along with a still-large Class 8 backlog, continue to weigh on new Class 8 orders (according to ACT Research). Looking back, 2018 Class 8 net orders increased 65% y/y, largely driven by improving freight fundamentals (i.e., tonnage, rates, etc.), in conjunction with strong demand from dealers preparing for sustaining demand trends in 2019. ACT increased its 2019 Class 8 production estimate to 345K (from 342K) units, but decreased its 2020 Class 8 production estimate to 238K (from 240K) units. The implied growth in 2019 of +6.3% y/y (vs. +27% y/y in 2018) reflects gradual deceleration from last year’s remarkable strength on mixed economic conditions and tough comps (expected to be most apparent in spring and summer, according to ACT), along with softening average industry conditions. ACT increased its 2019, but decreased its 2020, medium-duty production outlook to 273K (from 268K) units in 2019 and 260K (from 271K) units 2020. With respect to trailers, July net orders (unadjusted for seasonality) totaled 10,339 units (169,236 SAAR vs. 81,840 SAAR in June), implying a decrease of 64% y/y, as orders continue to break the long-running order stream that started in the fall of 2017, as many OEMs continue to avoid significant 2020 production commitments. Additional OEMs opened 2020 orderboards without noticeable results; fleets appear to be very reticent to commit the investment given market pressures of strong capacity growth in the face of a slowing economy, lower freight volumes/rates, and tariff uncertainties (according to ACT Research). July’s trailer backlog finished at 149,393 units (-10.8% vs. June and -7% y/y), the first y/y backlog decline since September 2017. The backlog-to-build ratio decreased to 5.3 months in July (vs. 5.6 in June). Cancellations increased +235.9% y/y; however, they decreased 29.7% vs. June. ACT updated its U.S. freight volume expectation, now calling for 2.9% growth in 2019 (from +2.7%). According to the ATA, seasonally-adjusted July truck tonnage (measuring trucking activity against a base of 100 in the year 2015) increased to 122.7 vs. 115.1 in June and increased 7.3% on a y/y basis (largest y/y gain since April). Looking back, 2018 grew +6.7% y/y, well above the +3.8% y/y growth rate in 2017 and the largest annual gain since 1998 (+10.1%).
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September 2019
CHART 33. CLASS 8 NET ORDERS
Sources: America’s Commercial Transportation Research Co. (A.C.T.) and KeyBanc Capital Markets Inc. estimates
CHART 34. CLASS 5-7 TRUCK BUILDS & BACKLOG
(Three-Month Rolling Average)
Source: America’s Commercial Transportation Research Co. (A.C.T.)
CHART 35. TRUCK TONNAGE INDEX (Rolling 12-Month Y/Y % Change)
Source: American Trucking Association (ATA)
TABLE 14. KEYBANC CAPITAL MARKETS INC. INDUSTRIAL UNIVERSE MEDIUM/HEAVY-DUTY TRUCK MARKET EXPOSURE
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Actuant Corporation ATU 13% Kennametal Inc. KMT 5%
Altra Holdings Inc. AIMC 15% Parker-Hannifin PH 9%
AMETEK, Inc. AME 1% Park-Ohio Holdings PKOH 9%
Eaton Corporation ETN 8% RBC Bearings ROLL 12%
EnPro Industries, Inc. NPO 26% Helios Technologies HLIO 10%
Federal Signal FSS 30% Timken Company TKR 20%
Ingersoll-Rand IR 16% WABCO Holdings Inc. WBC 66%
Company
Name
Ticker
Symbol
Percent of
Total Sales
Company
Name
Ticker
Symbol
Percent of
Total Sales
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 31 of 37
September 2019
SECTION 4. MONTHLY ORDERS
TABLE 15. CATERPILLAR MONTHLY TURBINE SALES
Electric Power
Industrial
Marine
Petroleum
Reciprocating & Turbine Engines (Total)
Jan-17 -15% -7% -15% -8% -11% Feb-17 -13% -11% -15% -3% -9% Mar-17 -7% -6% -3% 15% 1% Apr-17 -2% -11% -3% 4% -2% May-17 -10% 4% 9% 13% 4% Jun-17 -7% 10% -7% 6% 1% Jul-17 -12% 23% -8% -2% -2% Aug-17 -5% 25% -2% -11% -3% Sep-17 -1% 29% 5% 1% 5% Oct-17 3% 37% 51% 27% 23% Nov-17 -7% 30% 35% 43% 23% Dec-17 1% 21% 10% 35% 19% Jan-18 8% 13% 0% 27% 16% Feb-18 19% 12% 6% 29% 21% Mar-18 18% 1% -11% 43% 21% Apr-18 3% 0% -25% 43% 14% May-18 3% -12% -40% 31% 5% Jun-18 12% -4% -9% 30% 14% Jul-18 12% -8% -4% 24% 11% Aug-18 10% -8% 10% 36% 16% Sep-18 7% -15% -6% 21% 7% Oct-18 13% -11% -27% 20% 7% Nov-18 21% -6% -9% 20% 13% Dec-18 18% 2% 1% 16% 13% Jan-19 16% -4% 23% 4% 8% Feb-19 8% 3% 10% 10% 1% Mar-19 1% 2% -12% -8% -4% Apr-19 16% 6% -6% -8% 1% May-19 23% 8% -1% -13% 1% Jun-19 27% 5% -17% -7% 3% Jul-19 17% 16% -23% 3% 6%
Source: Company reports
TABLE 16. CATERPILLAR MONTHLY RETAIL MACHINE SALES (Three-Month Rolling Average)
Asia/Pacific EAME L. America Total Int'l (ROW) N. America Worldwide
Jan-17 26% -13% -29% -13% -8% Feb-17 39% -3% -21% -10% -1% Mar-17 46% -3% -25% -13% 1% Apr-17 47% -10% -30% -7% 1% May-17 49% -6% -15% 2% 8% Jun-17 40% -4% 3% 2% 7% Jul-17 45% 5% 10% 4% 12% Aug-17 44% 8% 11% 1% 11% Sep-17 43% 14% 6% 2% 13% Oct-17 46% 19% 24% 7% 19% Nov-17 43% 32% 48% 12% 26% Dec-17 50% 37% 55% 23% 34% Jan-18 51% 31% 49% 23% 34% Feb-18 41% 30% 39% 30% 33% Mar-18 31% 15% 34% 27% 26% Apr-18 33% 23% 56% 25% 28% May-18 36% 16% 43% 20% 24% Jun-18 37% 19% 29% 22% 25% Jul-18 30% 13% 16% 27% 24% Aug-18 28% 9% 18% 29% 23% Sep-18 23% 6% 25% 28% 21% Oct-18 20% 9% 23% 21% 18% Nov-18 15% 11% 14% 20% 16% Dec-18 3% 9% 17% 14% 10% Jan-19 -4% 5% 4% 20% 9% Feb-19 0% 2% 12% 13% 7% Mar-19 6% -4% 22% 14% 8% Apr-19 4% -6% 20% 13% 7% May-19 -4% -5% 16% 15% 6% Jun-19 -5% -5% 11% 12% 4% Jul-19 -6% -1% 20% 9% 4%
Source: Company reports
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Page 32 of 37
September 2019
TABLE 17. PARKER-HANNIFIN QUARTERLY ORDERS
Industrial N. America
Industrial International
Aerospace
Total PH
Mar-03 -5% 4% -5% 15% Jun-03 -7% -1% 14% 20% Sep-03 -2% 1% 11% 15% Dec-03 12% 8% -9% 11% Mar-04 21% 17% 1% 7% Jun-04 26% 20% 15% 2% Sep-04 17% 15% 19% 7% Dec-04 10% 10% 25% 10% Mar-05 5% 9% 12% 9% Jun-05 2% 0% 7% 14% Sep-05 8% 3% 8% 7% Dec-05 9% 8% 13% 10% Mar-06 9% 9% 23% 11% Jun-06 8% 13% 15% 12% Sep-06 5% 14% 18% 9% Dec-06 -1% 13% 10% 5% Mar-07 -2% 11% 2% 2% Jun-07 -3% 14% 8% 3% Sep-07 0% 19% 12% 7% Dec-07 4% 16% 19% 10% Mar-08 2% 11% 28% 9% Jun-08 4% 8% 23% 8% Sep-08 2% -2% 9% 1% Dec-08 -18% -28% 2% -20% Mar-09 -35% -41% -12% -34% Jun-09 -40% -43% -22% -38% Sep-09 -27% -25% -23% -25% Dec-09 -3% 0% -27% -7% Mar-10 30% 42% -22% 23% Jun-10 46% 46% -3% 35% Sep-10 31% 34% 16% 29% Dec-10 26% 29% 37% 29% Mar-11 20% 22% 44% 24% Jun-11 11% 18% 27% 15% Sep-11 16% 4% 14% 9% Dec-11 8% 1% 0% 3% Mar-12 7% -1% 4% 2% Jun-12 4% -9% 7% -1% Sep-12 -11% -8% 5% -6% Dec-12 -6% -5% 14% -2% Mar-13 -10% -7% 0% -7% Jun-13 -5% 3% 3% 0% Sep-13 3% 5% 11% 5% Dec-13 3% 6% 7% 5% Mar-14 6% 5% 16% 7% Jun-14 6% -4% 17% 4% Sep-14 6% 2% 12% 5% Dec-14 4% 1% 9% 4% Mar-15 -6% -3% -3% -4% Jun-15 -9% -5% -14% -9% Sep-15 -12% -8% -16% -11% Dec-15 -15% -10% -11% -12% Mar-16 -9% -6% 1% -6% Jun-16 -10% 3% 14% -1% Sep-16 -4% 3% 14% 2% Dec-16 0% 10% 9% 5% Mar-17 9% 13% 0% 8% Jun-17 10% 10% 1% 8% Sep-17 10% 15% 4% 11% Dec-17 15% 13% 8% 13% Mar-18 11% 8% 17% 11% Jun-18 9% 5% 10% 8% Sep-18 8% 3% 3% 5% Dec-18 0% -2% 10% 1% Mar-19 -6% -4% 2% -4% Jun-19 -4% -8% 10% -3%
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 33 of 37
September 2019
CHART 36. FASTENAL MONTHLY SALES
Source: Company reports
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 34 of 37
September 2019
SECTION 5. END MARKET AND GEOGRAPHIC BREAKDOWNS BY COMPANY
TABLE 18. END MARKET BREAKDOWN
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 35 of 37
September 2019
TABLE 18. END MARKET BREAKDOWN (Continued)
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
Page 36 of 37
September 2019
TABLE 19. GEOGRAPHIC BREAKDOWN
KeyBanc Capital Markets Inc., Member FINRA/SIPC
Equity Research
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September 2019
TABLE 19. GEOGRAPHIC BREAKDOWN (Continued)
Note: Asia-Pacific includes Japan.
Sources: Company reports and KeyBanc Capital Markets Inc. estimates
Important DisclosuresImportant disclosures for the companies mentioned in this report can be found at https://key2.bluematrix.com/sellside/Disclosures.action.Please refer to the analysts' recently published reports for company-specific valuation and risks.
Reg A/C Certification
The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressedin this research report accurately reflect the research analyst's personal views about any and all of the subjectsecurities or issuers; and (2) no part of the research analyst's compensation was, is, or will be directly or indirectlyrelated to the specific recommendations or views expressed by the research analyst(s) in this research report.
Rating Disclosures
Distribution of Ratings/IB Services Firmwide and by Sector
KeyBanc Capital Markets
IB Serv/Past 12 Mos.
Rating Count Percent Count Percent
Overweight [OW] 253 43.47 64 25.30
Sector Weight [SW] 316 54.30 42 13.29
Underweight [UW] 13 2.23 3 23.08
Industrial
IB Serv/Past 12 Mos.
Rating Count Percent Count Percent
Overweight [OW] 49 32.03 10 20.41
Sector Weight [SW] 98 64.05 4 4.08
Underweight [UW] 6 3.92 0 0.00
Rating System
Overweight - We expect the stock to outperform the analyst's coverage sector over the coming 6-12 months.
Sector Weight - We expect the stock to perform in line with the analyst's coverage sector over the coming 6-12months.
Underweight - We expect the stock to underperform the analyst's coverage sector over the coming 6-12 months.
Disclosure Appendix
September 12, 2019KBCM Research Industrials Team
Pg.38 / [email protected]
Important disclosures for the companies mentioned in this report can be found at https://key2.bluematrix.com/sellside/Disclosures.action.
Please refer to the analysts' recently published reports for company-specific valuation and risks.
Other DisclosuresKeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorpand its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC (“KBCMI”), and KeyBank National Association(“KeyBank N.A.”), are marketed.
KeyBanc Capital Markets Inc. (“KBCMI”) does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.
This report has been prepared by KBCMI. The material contained herein is based on data from sources considered to bereliable; however, KBCMI does not guarantee or warrant the accuracy or completeness of the information. It is published forinformational purposes only and should not be used as the primary basis of investment decisions. Neither the informationnor any opinion expressed constitutes an offer, or the solicitation of an offer, to buy or sell any security. The opinions andestimates expressed reflect the current judgment of KBCMI and are subject to change without notice. This report may containforward-looking statements, which involve risk and uncertainty. Actual results may differ significantly from the forward-lookingstatements. This report is not intended to provide personal investment advice and it does not take into account the specificinvestment objectives, financial situation and the specific needs of any person or entity.
No portion of an analyst’s compensation is based on a specific banking transaction; however, part of his/her compensationmay be based upon overall firm revenue and profitability, of which investment banking is a component. Individuals associatedwith KBCMI (other than the research analyst(s) listed on page 1 of this research report) may have a position (long or short) inthe securities covered in this research report and may make purchases and/or sales of those securities in the open market orotherwise without notice. As required by FINRA Rule 2241(C)(4)(A), financial interest, if any, by any research analysts listedon page 1 of this report will be disclosed in Important Disclosures, Company-specific regulatory disclosures located abovein the Disclosure Appendix. KBCMI itself may have a position (long or short) in the securities covered in this research reportand may make purchases and/or sales of those securities in the open market or otherwise without notice. As required byFINRA Rule 2241(C)(4)(F), if KBCMI, or its affiliates, beneficially own 1% or more of any class of common equity securitiesin the subject company(ies) in this research report, it will be disclosed in Important Disclosures, Company-specific regulatorydisclosures located above in the Disclosures Appendix. This communication is intended solely for use by KBCMI clients. Therecipient agrees not to forward or copy the information to any other person without the express written consent of KBCMI.
Disclosure Appendix (cont'd)
September 12, 2019KBCM Research Industrials Team
Pg.39 / [email protected]