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|-||[[Image:MTA_logo.jpg]] Machine Tools & Accessories industry companies manufacture products used to manufacture other products. Bearings, waterjet cutting machines, and engine lathes are all manufactured by these companies and sold to several end markets -- from the [[Auto Makers|automotive industry]] to the [[Energy|energy industry]]. The industry is an oligopoly, as it is dominated by three companies: [[Timken Company (TKR)|Timken Company]], [[Stanley Works (SWK)|Stanley Works]], and [[Kennametal (KMT)|Kennametal]].||+||[[Image:MTA_logo.jpg|eft]] Machine Tools & Accessories industry companies manufacture products used to manufacture other products. Bearings, waterjet cutting machines, and engine lathes are all manufactured by these companies and sold to several end markets -- from the [[Auto Makers|automotive industry]] to the [[Energy|energy industry]]. The industry is an oligopoly, as it is dominated by three companies: [[Timken Company (TKR)|Timken Company]], [[Stanley Works (SWK)|Stanley Works]], and [[Kennametal (KMT)|Kennametal]].|
Machine Tools & Accessories industry companies manufacture products used to manufacture other products. Bearings, waterjet cutting machines, and engine lathes are all manufactured by these companies and sold to several end markets -- from the automotive industry to the energy industry. The industry is an oligopoly, as it is dominated by three companies: Timken Company, Stanley Works, and Kennametal.
Timken is the world's largest manufacturer of tapered roller bearings and alloy seamless mechanical steel tubing, though it also makes other bearings and steel alloys for industries ranging from defense to oilfield services to wind energy..TKR leads the industry in market cap and total revenue. Steel alloy manufacturing makes TKR unique in the industry.
Stanley Works makes tools - construction tools, industrial tools, even the kind of tools you get at Home Depot and give your dad on Father's Day - as well as home security systems. In 2007, Stanley Works led the machine tools & accessories industry in market cap ($3.8 billion), return on equity (20.53%), and low P/E ratio (11.93). SWK has distinguished itself by using branding techniques, such as having a $42.5 million advertising budget in 2007 and having a sponsorship in NASCAR. 
Kennametal is an industrial equipment manufacturer, particularly metal-cutting tools, drill bits, and other pieces of equipment where resistance to wear is required. Kennametal focuses on staying on the cutting-edge of manufacturing tools, so products made within the last five years contribute 40% to KMT sales. KMT has cut costs using its Lean Initiative program; in the first year of the program, 2005, the company saved $35 million and increased net margins by 2.5%.
Kaydon primarily sells friction control bearings and filtration products, and is the leading manufacturer of wind turbine bearings. KDN's sales total is 18% as large as KMT's sales total. To compete in the machine tools industry, KDN has established itself as the market sales leader of a booming niche market -- wind energy. This strategy gave KDN higher 2007 revenue growth than SWK, TKR, and KMT.
RBC Bearings makes plain, roller, and ball bearings, and sells them to aerospace and industrial end markets. ROLL competes in the industry by producing niche military products. In 2008, ROLL had backlog of $217.7 million, a 23% growth from 2007 due to increased military replacement parts for the Iraq War.
Hardinge has manufactured engine lathes, a metal cutting machine, for other a century and is now selling these machines to large industrial markets such as aerospace and energy Unlike its competitors, HDNG is based in Europe and has a strong sales presence outside of North America. European sales, at $170.9 million, accounted for half of HDNG's 2007 annual sales. HDNG was particularly strong in Germany and China. China is the number one consumer of machine tools with annual consumption of over $15 billion, approximately 23% of total world consumption.
In 2007, FLOW's sales total is 4.36% as large as its biggest machine tools competitor, TKR. FLOW has been able to compete in this industry by producing a niche product: waterjet machine tools. FLOW has claimed 60% of the global waterjet market. Airbus and Mitsubishi Heavy Industry are both large customers, and have awarded FLOW multi-million dollar contracts, including a $30 million contract from Airbus.
|Competition||Timken Company (TKR)||Stanley Works (SWK)||Kennametal (KMT)||Kaydon (KDN)||RBC Bearings (ROLL)||Flow International (FLOW)||Hardinge (HDNG)||Thermadyne Holding (THMD)||CompX International (CIX)|| NN (NNBR) 
|Market Cap $Mil||299.57||3,520.00||228.32||80.17||161.20||818.90||206.27||2,830.00||3,800.00||1,690.00|
|Gross Profit $Mil||92.14||1,053.83||154.35||45.23||107.41||100.11||84.27||841.56||1,692.20||184.30|
|Net Profit Margin %||2.00%||4.19%||2.14%||5.05%||4.19%||9.30%||-0.28%||7.50%||7.51%||17.22%|
|Operating Margin %||2.37%||6.22%||8.97%||8.75%||6.42%||16.96%||2.65%||11.29%||10.06%||24.65%|
The primary consumer of machine tools products are companies of other industries. Hence, the success of machine tools companies is contingent upon the success of the companies they sell to. The oligopoly companies (TKR, KMT, and SWK) were affected by the declining U.S. Housing Market and automotive industry. Home construction is a primary buyer of SWK products, as consumers use SWK tools for do-it-yourself and home construction. The automotive industry affects Kennametal's second-largest end market, on-highway vehicles (28% of sales). Historically, the oligopoly has profited from the automotive and housing markets. Since the decline of these markets, the oligopoly companies have had to revamp their portfolios.
Other companies, such as RBC Bearings and Kaydon, have seen success due to success in their niche product markets. In fiscal 2008, an estimated 21.5% of RBC Bearing's net sales were to the U.S. Military. This gave RBC a backlog of $217.7 million, a 23% growth from 2007 due to increased military replacement parts for the Iraq War. In 2007, KDN was the market leader in wind turbine bearing sales. Wind energy is a booming industry in the U.S.; installed wind energy turbines in the United States grew 45% in 2007 making it the world's second-largest wind energy market after Germany. The U.S. invested $9 billion in wind energy in 2007, and is projected to invest $65 billion from 2007 to 2015. In Q3 2008, KDN's wind energy products had $60 million backlog, contributing to the company record $201.5 million backlog in that quarter.
Steel is a prime commodity in the machine tools industry. All machine tools companies use steel in manufacturing products such as bearings, drills, and cutting machines. From 2004 to 2008, scrap metal price has grown from $75 per ton to over $550 per ton. This spike in price has pressured machine tools companies to maintain margins. A majority of the companies have used pricing to past costs to consumers, while others have developed more efficient programs to cut costs and eliminate waste. For example, Kennametal installed the Lean Initiatives program in 2005, which saved them $35 million in that year.
Timken receives benefit to rising steel prices, however. Timken produces steel alloy using scrap metal, nickel and other alloys. Since TKR makes steel, it can use pricing to take advantage of fluctuating scrap metal prices. Also, increased steel prices increase demand for TKR's heavy bearings used in rolling mills to make steel more efficiently.
To safeguard against a potential U.S. recession, machine tools companies have looked to prosper in international economies. Mainly, companies have been expanding to two booming markets: China and India. China's gross domestic product increased 11.3% in 2007.. India's gross domestic product increased 9.0% from fiscal 2007-2008. The U.S. gross domestic product increased 2.2% in 2007. Hardinge is the only machine tools company not based in the U.S., so machine tools companies have been expanding internationally to lose dependence on the U.S. Economy.
Timken has opened facilities in China and India, which led to annual sales in each country increasing 30% and 20% , respectively. Similarly, Kaydon acquired Avon Bearings in China and opened a facility in Germany to bolster its wind energy product line. In 2006, KMT divested its J&L Industrials segment to make a slew of international acquisitions, including Camco and Sintec.