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WIKI ANALYSIS
SPX (NYSE: SPW) manufactures industrial-grade power infrastructure products and specialty diagnostic tools. SPX has operations in over 35 countries and sales in over 150 countries across the globe.[1] Its products range from pumps and valves to power transformers and specialty automobile diagnostic tools. SPX targets two end markets in particular: the energy industry and the automotive industry.[2] SPX's other two key global end markets are food and beverage and tools and diagnostics industries. During 2009, approximately 29% of its revenues were generated from serving these two end markets.[1]
With aging energy infrastructure in the United States, combined with new legislation requiring higher efficiency for energy transmission, electric companies are projected to invest $28 billion in transmission by 2010. SPX's products are used in all aspects of the energy production process -- pumps and pipes for transferring fuel and byproducts, thermal products for regulating temperatures during electricity generation, and power transformers for transmission and distribution. Since SPX's business is concentrated primarily in North America, its growth fluctuates with changes in the American automobile industry, where new car sales have declined since the onset of the recession.[3]
Company Overview
Business Financials
In 2009, SPX earned total revenues of $4.85 billion, a significant decline from the previous year's revenues of $5.84 billion; this led its operating income to fall from $411 million in 2008 to just $95 million in 2009.[4] The decline in revenues was attributed to a stronger U.S. Dollar (USD) coupled with slow sales as a result of the tough economic environment in 2009. As a result, its net income declined as well from $248 million to just $42 million in 2009.
Furthermore, SPX has diversified its revenue sources. In 2004, only 30% of its total revenues were earned outside of the United States. However, in 2009 over half of all revenues were earned internationally.[5]
Segments
SPX breaks its operations into four segments: i) Flow Technology, ii) Test and Measurement, iii) Thermal Equipment and Services, and iv)
Flow Technology (33.7% of 2009 revenue)
SPX's Flow Technology segment makes products used to transfer fluids and heat during industrial processes. Significant items include pumps, valves, filters, and heat exchangers. Critical end-markets include sanitary manufacturing industries and energy facilities. Sanitary industries include food, beverage, and health care product manufacturers. In 2009, this segment earned $1.63 billion in total revenues.[6]
Test and Measurement (16.7% of 2009 revenue)
This segment manufactures specialty diagnostic tools, 81% of which ended up with vehicle manufacturers and repair facilities. In 2009, this segment posted total revenues of $810 million.[6]
Thermal Equipment and Services (33.0% of 2009 revenue)
The Thermal Equipment and Services segment creates cooling and heating products for industrial, commercial, or residential settings. The largest end market remains energy facilities, followed by general heating, ventilation, and cooling systems. For 2009, this segment earned total revenues of $1.6 billion.[7]
Industrial Products and Services (16.8% of 2009 revenue)
This segment makes products ranging from hydraulic units to broadcast antennas, though medium- to large-grade Waukesha power transformers accounted for a large percentage of segment revenue in 2009. This segment posted total revenues of $806 million in 2009.[7]
Trends and Forces
Declining domestic automobile sales have hurt sales of vehicle diagnostic tools.
Since the first half of 2008, domestic new car sales fell dramatically year-over-year as the 2007 Credit Crunch as well as 2008 Financial Crisis hurt new car sales significantly. This led to a decline in SPX's diagnostic tools (sold through the Test and Measurement division), which brought in a large portion of the total company revenue in 2009. With a large reliance on the domestic automobile industry, the company's earnings could rebound if the domestic auto industry rebounds as well.
Aging U.S. energy infrastructure and stricter reliability standards driving heavy transmission investment
An Edison Electric Institute study stated that electric companies plan to invest over $28 billion in transmission by 2010.[9] The failure rate for an electricity transformer rises sharply 30 years after installation, and the United States' last major investment in transformers occurred in the 1970s, peaking at 185 giga-voltage amperes installed in 1974.[10] As a result, power companies throughout the United States are beginning to replace aging transformer units, which benefits SPX's Waukesha Electric division. Moreover, the Energy Policy Act of 2005 now mandates the strict enforcement of electricity reliability standards.[11] The threat of severe penalties (up to $1 million per day) for ineffective transmission has prompted power distributors to invest in all aspects of their energy grids, including outdated transformers.
Competition
Flow Technology[12]
- Emerson Electric Company (EMR) makes industrial-grade pumps, valves, pipes, and gauges.[13]
- Alfa Laval (OMX: ALFA), a Swedish corporation, held the top market position in the sanitary fluid handing business.
- GEA Group (FWB: G1AG), based in Germany, makes valves and pumps for liquid transfer.
Test and Measurement
- Snap-On (SNA) makes diagnostic tools for vehicle service and repair.[14] Like SPX, Snap-On targets franchised dealers, original equipment manufacturers, and independent repair shops.
Thermal Equipment and Services
- GEA Group (FWB: G1AG) makes wet and dry cooling systems for power plants and industrial facilities through its Thermal Engineering segment. GEA also offers indoor heating, ventilation, and air conditioning products.
- Emerson Electric Company (EMR) sells HVAC and commercial refrigeration products through its Climate Technologies segment.[15]
Industrial Products and Services
- ABB (ABB) makes electricity transformers, competing with SPX's Waukesha Electric products.
References
- ↑ 1.0 1.1 SPW 10-K 2009 Item 1 Pg. 1
- ↑ SPX Annual Guidance Meeting 2008 page 13
- ↑ WSJ Market Data Center, Auto Sales, 7/1/2008
- ↑ SWP 10-K 2009 Item 6 Pg. 18
- ↑ SPW 10-K 2009 Item 7 Pg. 20
- ↑ 6.0 6.1 SPW 10-K 2009 Item 7 Pg. 27
- ↑ 7.0 7.1 SPW 10-K 2009 Item 7 Pg. 28
- ↑ EEI "Actual and Planned Transmission Investment" 2007
- ↑ EEI "Actual and Planned Transmission Investment" 2007
- ↑ SPX Annual Guidance Meeting 2008 pages 35-37, Source: Hartford Steam Boiler
- ↑ Hunton & Williams Client Advisory, "Energy Policy Act of 2005 Gives Teeth to Electric Reliability Rules," August 2005
- ↑ SPW 2007 10-K page 2-3
- ↑ Emerson Investor Relations, "Process Management Business Segment"
- ↑ SPA 2007 10-K page 89
- ↑ Emerson Investor Relations, "Climate Technologies Business Segment"
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