Monday, September 29, 2014

Why Danaher Corporation Could Fall

There is no doubt that Danaher Corporation (NYSE: DHR  ) is one of the highest-quality names in the industrial sector, but with the stock underperforming the S&P 500 by around 7.7% year to date, there is a sense that the market is losing a little patience with Danaher. In addition, the company is facing a significant amount of unpredictability about its future prospects -- an unusual situation for Danaher. It's time to look at three reasons Danaher could fall in 2014.

Temporary or structural weakness?
Danaher's second-quarter results disappointed the market, and Fools already know that it was mainly due to softness in two product lines. Communications (the test and measurement segment) and dental consumables both disappointed in the quarter, and Danaher CEO Larry Culp said he expected "negative growth" for the communications platform for the rest of the year. Fools can read about the other main conclusions from the conference call here.

While there's a case to be made for a bounce-back in both of these product lines in future quarters, the following chart of segmental sales reveals that these problems may be something structural.

Source: Danaher Corporation presentations.

Clearly, the dental and test and measurement segments haven't grown over the past three years, and it's not clear whether the current weakness is merely part of a deteriorating end market.


Saturday, September 27, 2014

UPS Conference Call Review

t's been a difficult year for United Parcel Service (NYSE: UPS  ) investors, as the stock has notably underperformed the S&P 500 and its main rival, FedEx (NYSE: FDX  ) . After a winter beset with difficulties for the logistics companies because of a combination of poor weather, unexpectedly strong e-commerce delivery demand, and a Christmas shopping season with fewer than average days, many investors thought UPS might be over the worst by now. Unfortunately, that wasn't the case, and the second-quarter results proved to be a disappointment. Here's what management wants you to know about its performance.

United Parcel Service delivers.

Investing in long-term growth

After the winter debacle, during which many customers saw delayed delivery and UPS suffered a ramp-up in costs associated with unexpectedly high peak demand, UPS management committed itself to investing in ways to deal with any future problems. Unfortunately, the costs associated with these investments, in areas such as technological and operational expansion, are going to be more than initially expected. According to CFO Kurt Kuehn:


Wednesday, September 24, 2014

Is Deere a Stock to Buy?

Agricultural and construction machinery manufacturer Deere  represents one of the most compelling investment ideas in the industrial sector right now. However, it's not going to be an easy decision for you. The long-term demand for food (more than 80% of Deere's sales are in its agriculture and turf segment) remains in place, but the company also faces significant near-term risks from declining food prices. What's an investor to do?

Source: Motley Fool Flickr.

Deere's upside and downside drivers
Before focusing on answering this question, readers may be interested in referencing other articles in this series. For example, a review of the recent results here highlights the deterioration in the company's agricultural sales; a review of the five key takeaways from the earnings conference call can be found here; and articles making the making the bullish and bearish cases for the stock can be found here and here.

Turning back to question in my lead, the answer is "no" and "yes." No one said buying and selling stocks was easy!


Sunday, September 14, 2014

Danaher Corporation Bullish Article

After an underwhelming set of second-quarter results and some cautious management guidance, investors in Danaher Corporation must have felt the stock was likely to be range-bound for a while. However, a good quality company is rarely without upside potential, and there are three key reasons for optimism over the stock, ranging from the near term to the long term -- suggesting that investors have a significant time frame in which to expect some upside.

Communications and dental consumables to bounce back?
Starting with the near term, Fools already know that Danaher's second-quarter results were adversely affected by the underperformance of two businesses with high variable margin. Communications-based revenue in the test and measurement segment was weak because of spending delays by wireless carriers, and dental consumables in the dental segment were weak, too. You can see the effect on profits and margins in this article.

Danaher's management candidly said that it doesn't expect conditions to get better anytime soon with communications, but the reality is that wireless carrier spending is notoriously lumpy.


Thursday, September 11, 2014

Danaher Corporation Conference Call Review

Investors in Danaher Corporation (NYSE: DHR  ) saw the company deliver a disappointing set of second-quarter results that caused the stock to drop notably. In fact, as of today, it's pretty much flat on a six-month basis. In truth, the results weren't that bad: The midpoint of full-year generally accepted accounting principles earnings per share guidance was actually raised by a couple cents as management narrowed its guidance to $3.67-$3.72 from $3.60-$3.75.

However, the market obviously expected more, and certain elements of the company's performance surprised on the downside. Danaher reports out of five segments: industrial technologies, environmental (mainly water quality), dental, life sciences and diagnostics, and test and measurement. This kind of diversification normally means that the company is broadly exposed to the industrial economy, and management's commentary certainly reflected a moderately growing environment. With that said, here are five things management wants you to know about the quarter.

Weakness limited to two areas, profits and margins hit

First, Danaher's management was keen to point out that the weakness was limited to two specific areas. Communications revenue within its test and measurement segment was down at a "low double-digit" rate, which the company linked to delays in spending by wireless carriers. Indeed, rival Agilent (NYSE: A  ) also reported a 6% fall in its communications revenue. The other difficult area came in the dental segment, which recorded "weak consumable sales," possibly due to bad weather earlier in the year. Unfortunately, according to Danaher CEO Larry Culp, both products tend to be "high-margin variables", and their underperformance hit operating profits within the test and measurement and dental segments.

Source: Danaher Presentations

Second, the impact...


Wednesday, September 10, 2014

How to Invest in the Industrial Equipment Sector

If you have wondered how to play the anticipated resurgence in manufacturing in the U.S., the industrial equipment industry could be the place to look for stocks to buy. The logic behind this view is simple: If the economy is flourishing, manufacturing companies will look to expand capacity and spending on capital machinery will increase. At this stage general industrial equipment companies such as Siemens, ABB (NYSE: ABB  ) , Parker-Hannifin (NYSE: PH  ) , Honeywell International (NYSE: HON  ) , and Emerson Electric (NYSE: EMR  )  start to look attractive. Investors should also consider more niche market players such as vision machine company Cognex (NASDAQ: CGNX  ) or Roper Industries (NYSE: ROP  ) . It's time to look closer at the industry.

Source: Motley Fool Flickr Account.

What is the industrial equipment industry?

In essence, the industry represents any item of capital machinery that is sold to an industrial company in order to enable its manufacturing or processing activity. While this traditionally means hardware, investors should recognize that software and information technology are becoming an increasing part of the industry.


Saturday, September 6, 2014

3 Reasons Why Deere Could Rise

Deere's  (NYSE: DE  ) share price has struggled in the last couple years and is now almost flat from where it was in 2011. Essentially, Deere hasn't participated in the broader market rally because investors have been pricing in the effect of declining crop prices on demand for its agricultural equipment. In issuing its third-quarter results, Deere management downgraded expectations for equipment sales and net income for the full year. With that said, there are three key reasons why the stock could outperform going forward.

Deere faces challenges

This article will focus on outlining the upside potential for Deere. For some background, Fools can find out more about Deere's recent results here, and read about the five key takeaways from the company's earnings conference call here.

Conditions are likely to get tougher in the near term for Deere, as the company and the U.S. Department of Agriculture have both lowered expectations for future key crop prices. Lower crop prices (principally for goods such as soybeans, cotton, corn, and wheat) affect farmers' income and therefore their willingness to pay for agricultural machinery.


Wednesday, September 3, 2014

Why Deere's Stock Could Fall

Having recently disappointed the market with its guidance, investors will be wondering if Deere's (NYSE: DE  ) fortunes have now hit a trough and are about to turn up, or whether the stock has further to fall? The purpose of this article is to look at the three downside risks, so investors can make an informed decision as to whether they want to buy, hold, or sell the stock.

Deere equity research
This article is part of an ongoing series on the company, intended to give readers a balanced viewpoint. Fools have already read a summary of Deere's recent earnings linked here. Essentially, full-year expectations for net income and equipment sales were reduced in the earnings report, as the Deere's agricultural machinery sales are taking a hit from weak crop prices. There is a summary of the five key takeaways from the conference call linked here, and a look at potential upside drivers linked here.