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WIKI ANALYSIS
Idex Corporation (NYSE: IEX) manufactures specialized valves, nozzles and pumps for niche markets.[1] The company also manufactures fire safety equipment such as the famous jaws of life.[2] Idex recorded 2007 total revenues of nearly $1.4 billion. Idex's operating margin has remained steady at just under 19% for each of the last three years.[3]
In 2007, 46% of Idex's total revenues were from overseas business.[4] As a result, Idex was exposed to exchange rates, which gave the company's international revenues a $34.65 million dollar boost in 2007.[5] Likewise, because the demand for oil based products is rising and there hasn't been a new oil refinery built in the United States since 1976, the demand for products that make oil refineries more efficient is increasing.[6] This resulted in 9% organic growth for Idex's Fluid & Metering Technologies segment.[5] On the other hand, the majority of Idex's growth in 2007 was a result of acquisitions.[5] As a result Idex is exposed to the risks associated with corporate acquisitions, over half of which fail.[7] The company competes with other manufacturers such as Illinois Tool Works (ITW), Graco (GGG) and Nordson (NDSN).
Business Overview
Idex completed seven acquisitions in 2007.[8] The acquisitions included companies designed to increase Idex's presence in the market for health care equipment as well as the market for fluid handling products.[8] The acquisitions were a part of Idex's strategy of purchasing companies that compliment Idex's core business.[8]
Segment Information
- Fluid & Metering Technologies (42% of revenue) manufactures pumps, injectors and flow meters for specific applications in the fuel processing, chemical processing, food, beverage, pharmaceutical and other industries.[9] For the most part, Fluid & Metering Technologies produces niche products such as pumps for high volume applications and flow meters that measure caustic or viscous liquids.[9] The segment competes with companies like Graco (GGG) and Nordson (NDSN).
- Health & Science Technologies (24% of revenue) manufactures pumps and other products designed for medical and scientific applications.[10] The segment's products include pumps that create small vacuums or small amounts of pressure for the medical equipment, paint mixing equipment, electronics manufacturing and other markets.[10] The segment also makes injectors, valves and accessories for high pressure liquid chromatography equipment as well as a line of precision pumps and measuring devices for the drug discovery industry.[10] The segment competes with companies like Graco (GGG) and Nordson (NDSN).
- Dispensing Equipment (13% of revenues) manufactures precision mixing and metering products.[11] The segment's products are used to mix auto-paint, architectural paint and personal care products.[11] The segment's products are sold to paint stores, auto-shops and manufacturers of tinted personal care products such as hair colorant.[11] The segment competes with companies like Graco (GGG), Nordson (NDSN) and Illinois Tool Works (ITW).
- Fire & Safety/Diversified Products (21% of revenues) manufactures pumps and controls for fire trucks.[2] The segment also manufactures rescue tools such as the famous jaws of life.[2] The segment's other products include bands and fasteners used to connect exhaust systems to cars, traffic signs and signals to their poles and for other applications.[2] The segment competes with companies like Illinois Tool Works (ITW).
Financials
Idex Total Revenues, Net Income and Operating Income[3][4] ($ in millions)
| Segment | 2007 | 2006 | 2005 |
| Fluid & Metering Technologies | $569 | $434 | $382 |
| Health & Science Technologies | $324 | $301 | $233 |
| Dispensing Equipment | $178 | $160 | $158 |
| Fire & Safety/Diversified Products | $288 | $260 | $239 |
| Total Revenues | $1,359 | $1,155 | $1,011 |
| Operating Income | $255 | $217 | $181 |
| Net Income | $155 | $147 | $110 |
Key Trends and Forces
Idex's strategy of growth by acquisition requires the continued ability to pick winning companies
According to Sayan Chatterjee a Batten Fellow at the University of Virginia Darden School of Business, acquisitions fail more times than they succeed due to overpayment for the acquisition and/or failure to quickly and effectively integrate the acquired company into the buyers corporate structure.[12] The Clare Ross Organization supports this assertion by claiming that less than 50% of corporate acquisitions are successful.[7] Because Idex made seven acquisitions in 2007 that increased revenues by 9%[5] and five acquisitions in 2006 that increased revenues by 5%,[13] the company is exposed to the risk of making a poorly selected or poorly managed acquisition.
Demand for gasoline and other oil based products affects the demand for Idex's products used by the oil refining industry
In Q2 2008, the world consumed 79 million barrels of oil a day.[6] Analysts expect world oil consumption to jump to 82.5 million barrels per day by Q4 2008.[6] The increased demand for oil and the products has increased the demand for oil refining services. However, there hasn't been a new oil refinery built in the United States since 1976 because of stringent environmental regulation and high construction costs.[6] As a result, companies that own oil refineries are updating their refineries to operate more efficiently and process more barrels of oil per day.[6] Idex's Fluid & Metering Technologies segment takes advantage of increased emphasis on oil refinery by manufacturing specialized pumps and metering products that help oil refiners maximize the efficiency of their refineries.[9] As a result, the increased demand for oil based products contributed to an increase in Idex's Fluid & Metering Technologies revenue from $434 million in 2006 to $569 million in 2007 and organic growth for the segment of 9% in 2007.[5] In general, when the demand for oil based products increases so does the demand for products that make oil refineries more efficient and productive. This increases the demand for Idex's Fluid & Metering Technologies products and increases the segment's revenues. On the other hand, when the demand for oil based products decreases so does the demand for Idex's Fluid & Metering Technologies products. This decreases the segment's revenues.
Favorable exchange rates gave Idex a $34.65 million dollar international revenue boost in 2007
Between June 18, 2007 and June 18, 2008, the U.S. dollar depreciated in relation to the euro, the Canadian dollar, the pound and the Chinese yuan.[14][15][16] As a result of the weak dollar, Idex received a $34.65 million dollar boost to international revenues in 2007.[5] In general, when foreign currencies depreciate relative to the U.S. dollar, the value of Idex's international sales decreases. On the other hand, exchange rates resulting in a weak U.S. dollar boost the value of Idex's international sales.
Key Competitors
- Illinois Tool Works (ITW) manufactures steel and plastic banding products, decorative surfaces, paint sprayers, polymers and fluids, electronics manufacturing products and products used for the production of processed foods. The company's steel banding products, paint sprayers and food processing products compete with similar products produced by Idex's Fluid & Metering Technologies, Dispensing Equipment and Fire & Safety/Diversified Products segments.[17]
- Graco (GGG) manufactures specialized pumps, other fluid management products, contractor tools and industrial lubricants. It's specialized pumps and fluid management products compete with those produced by Idex's Fluid & Metering Technologies, Dispensing Equipment and Health & Sciences Technologies segments.[18]
- Nordson (NDSN) manufactures precision dispensing pumps, nozzles and other products as well as testing, inspection and surface preparation products. The company's pumps, nozzles, testing and inspection products compete with those produced by Idex's Fluid & Metering Technologies, Dispensing Equipment and Health & Sciences Technologies segments.[19]
Idex and Key Competitors 2007 ($ in millions)
| Company | Total Revenues | Net Income | Net Profit Margin |
| Idex | 1,359 | 155 | 11.4% |
| Illinois Tool Works (ITW) | 16,171 | 1,870 | 11.6% |
| Graco (GGG) | 841 | 153 | 18.2% |
| Nordson (NDSN) | 994 | 91 | 9.1% |
References
- ↑ IEX 2007 10-K Item 1: Business, pg 1
- ↑ 2.0 2.1 2.2 2.3 IEX 2007 10-K Item 1: Fire & Safety/Diversified Products, pg 4
- ↑ 3.0 3.1 IEX 2007 10-K Item 1: Selected Financial Data, pg 12
- ↑ 4.0 4.1 4.2 4.3 IEX 2007 10-K Item 8: Business Segment and Geographic Information, pgs 41-42
- ↑ 5.0 5.1 5.2 5.3 5.4 5.5 IEX 2007 10-K Item 7: Performance in 2007 compared with 2006, pg 15
- ↑ 6.0 6.1 6.2 6.3 6.4 MSNBC: U.S. refiners stretch to meet demand
- ↑ 7.0 7.1 Clare Ross Organization: Ensuring Merger & Acquisition Success
- ↑ 8.0 8.1 8.2 IEX 2007 Annual Report: Letter to Shareholders, pg 5
- ↑ 9.0 9.1 9.2 IEX 2007 10-K Item 1: Fluid and Metering Technologies, pg 2
- ↑ 10.0 10.1 10.2 IEX 2007 10-K Item 1: Health & Science Technologies, pgs 2-3
- ↑ 11.0 11.1 11.2 IEX 2007 10-K Item 1: Dispensing Equipment, pgs 3-4
- ↑ Sayan Chatterjee and L. J. Bourgeois, III: A Framework for Acquisition Success: Post-acquisition Resource Interactions, pg 2
- ↑ IEX 2007 10-K Item 7: Performance in 2006 compared with 2005, pg 18
- ↑ 14.0 14.1 EUR to USD Exchange Rates
- ↑ USD-CAD Exchange Rates
- ↑ Historic Exchange Rates: USD-CNY Look up on 6/18/07 and 6/18/08
- ↑ Google Finance: ITW
- ↑ Google Finance: GGG
- ↑ Google Finance: NDSN
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