Idex Corporation (NYSE: IEX) manufactures specialized valves, nozzles and pumps for niche markets. The company also manufactures fire safety equipment such as the famous jaws of life. 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.
In 2007, 46% of Idex's total revenues were from overseas business. As a result, Idex was exposed to exchange rates, which gave the company's international revenues a $34.65 million dollar boost in 2007. 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. This resulted in 9% organic growth for Idex's Fluid & Metering Technologies segment. On the other hand, the majority of Idex's growth in 2007 was a result of acquisitions. As a result Idex is exposed to the risks associated with corporate acquisitions, over half of which fail. The company competes with other manufacturers such as Illinois Tool Works (ITW), Graco (GGG) and Nordson (NDSN).
Idex completed seven acquisitions in 2007. 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. The acquisitions were a part of Idex's strategy of purchasing companies that compliment Idex's core business.
|Fluid & Metering Technologies||$569||$434||$382|
|Health & Science Technologies||$324||$301||$233|
|Fire & Safety/Diversified Products||$288||$260||$239|
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. The Clare Ross Organization supports this assertion by claiming that less than 50% of corporate acquisitions are successful. Because Idex made seven acquisitions in 2007 that increased revenues by 9% and five acquisitions in 2006 that increased revenues by 5%, the company is exposed to the risk of making a poorly selected or poorly managed acquisition.
In Q2 2008, the world consumed 79 million barrels of oil a day. Analysts expect world oil consumption to jump to 82.5 million barrels per day by Q4 2008. 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. As a result, companies that own oil refineries are updating their refineries to operate more efficiently and process more barrels of oil per day. 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. 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. 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.
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. As a result of the weak dollar, Idex received a $34.65 million dollar boost to international revenues in 2007. In general, when foreign currencies depreciate relative to the U.S. dollar, the value of Idex's international sales decreases. On the other hand, exchange rates resulting in a weak U.S. dollar boost the value of Idex's international sales.
Idex and Key Competitors 2007 ($ in millions)
|Company||Total Revenues||Net Income||Net Profit Margin|
|Illinois Tool Works (ITW)||16,171||1,870||11.6%|