Sector Watch: Supplier consolidation stocks

In the past, industrial customers maintained broad supply chains, contracting with numerous local distributors. This method is changing, though. Motivated by the need to reduce costs and improve inventory turns, most industrial customers are consolidating their supply chains and relying on first-tier distributors that can provide one-stop shopping. These customers are also demanding value-added services such as integrated supply, system design, and equipment fabrication, installation and maintenance. 

This supplier consolidation is creating budding opportunities for DXP Enterprises, Inc. (Nasdaq: DXPE) a leading U.S. supplier of maintenance, repair and operations (MRO) services, and KHD Humboldt Wedag International, Ltd. (NYSE: KHD), a global provider of plant design and equipment procurement services.    

KHD Humboldt provides industrial plant engineering services and equipment to mineral processors. It is a leading supplier to the global cement-manufacturing market and offers its customers proprietary technologies, plant and equipment design, and customized systems for process control and equipment optimization.

Formerly a merchant bank, KHD shifted its focus to industrial plant engineering in 2006. Since then, it has established operations in India, China, Russia, Germany, the Middle East, South Africa and the United States.

During the first nine months of 2007, KHD’s revenues grew 75% year-over-year to $418.8 million from $239.6 million and income from continuing operations climbed 102% to $38.6 million, or $1.27 per share, from $19 million, or $0.63 per share. New orders rose 123% in the September quarter to $240 million and exceeded $569 million for the nine-month period. Backlog totaled $762 million; nearly 90% of backlog was contracts in China, India, Russia and other emerging economies. KHD expects a 70% increase in full-year 2007 earnings to be between $1.70 and $1.75 per share.

---You can read the FULL article when you register (registration is free!) or sign-in to SmallCapInvestor.com---