Each year, Pumps & Systems gathers critical industry insight at the Gabelli Pump, Valve & Motor Symposium in New York. Thanks to about 20 in of snow, this year I spent the entire conference at LaGuardia airport. However, Gabelli's chief analyst for the pump industry, Jim Foung, was kind enough to share with me his candid observations and expert interpretations of the state of the pump industry for 2010.
“A combination of the weak global economy and lack of inventory stocking exasperated the downturn, which bottomed in late 2009,” Foung says. Without much re-stocking in 2009, Foung said the Gabelli Symposium speakers alluded that if nothing else happened in 2010 but re-stocking, we could see growth again soon. “But right now we are in a holding pattern.”
Simply put, “The economy has not gotten worse, but it has not gotten better,” Foung explains. “Distributors are not building inventories and this could be a new trend for a while. However, if history repeats itself, companies will have to restock at some point.”
Foung said many executives indicated growth in some areas, in particular the shorter cycle, book-to-ship markets in pumps and valves. “Major projects with normal lead time actually held up in 2009, but may be weakening a little now,” he says. “Major projects with longer cycles have caused more price competition, forcing some users to want to renegotiate contracts.”
Another trend for 2010 is a search for strategic acquisitions because of weak organic growth. “Quite a few companies indicated they have financial teams in place that can manage larger companies than they currently have.”
In retrospect, “Last year, cash was king,” Foung says. “The banks were not lending. There was a big concern about liquidity. Now, with some modest growth, metrics indicate that the market has picked up sequentially month over month.”
Foung says he is also hearing from companies beginning to see some benefits from the Stimulus Plan. “Two-thirds of the Stimulus spending has not impacted the economy yet,” he says. “It is a long process. A little bit of that is picking up the demand, which could help to make this a pretty good year.”
In general, “We should see modest growth in 2010 . . . maybe 1-2 percent,” Foung says. “The U.S. is consumer driven. If we have job growth and income growth, consumers will begin to spend again.”