NEW YORK, NY--(Marketwire - Dec 19, 2012) - U.S. based conglomerates, which include The Dover Corp. (
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The Dover Corp. exemplifies several of the industry wide growth trends. First, it is working diligently on cost management and reducing unnecessary expenses. Dover has also demonstrated a willingness to absorb profit declines in the short-term in favor of putting itself in a better position for years to come. It recently lowered its 2012 earnings per share guidance range by roughly $0.19. The majority of this decline can be attributed to the discontinuation of non-core businesses. Now, the company is more focused on five key segments: refrigeration and food equipment, fluid solutions, communication components, energy and product ID. This year alone these segments accounted for approximately 77% of the company's total revenues. With renewed focus, this number could potentially climb higher in 2013. Its recent acquisition of refrigerator glass door manufacturer Anthony International also highlights its commitment to the above segments and reflects a growing industry wide trend of greater acquisition activity.
Industry-wide acquisition activity is increasing as the outlook for macro-economic conditions in 2013 brightens and companies across a variety of sectors are still at attractive takeover prices. General Electric Company's strong run this year is also putting it among conglomerates that could be strengthening its core assets with acquisitions. Several news outlets are anticipating an offer for the Italian aerospace company Avio for around 3 billion Euros but GE has released nothing concrete at the time of publication. A 12% increase in quarterly dividend was made certain this week however, further cementing GE as one of the most committed companies to returning value to shareholders within the industry.
Fiscal cliff negotiations could also lead to a significantly improved tax code restructuring for American companies with overseas operations. Essentially, it is looking increasingly likely that President Obama will make some concessions to Republicans during his budget talks with John Boehner. Republicans are pushing for an easing on corporate taxes deemed too high for U.S. companies to be competitive. One of the potential adjustments could be a shift to a territorial tax system. In this type of system, U.S. based companies would not be required to pay taxes on profits earned outside of the country. Such a shift would have a major impact on future revenues for global companies. These changes are still in the speculative stage but investors with holdings in companies with a lot of overseas dealings will want to closely follow these negotiations and considering keeping shares of companies challenged by difficult economic circumstances this year.
Volatile currency markets will likely continue to cloud revenue predictions in the near-term. Unsettled budget negotiations in the U.S., ongoing sovereign debt crises in the Eurozone and inflationary concerns in China are still creating too much macro-economic uncertainties for a clearer picture of currency markets to be determined. An easing of any of the three aforementioned factors could potentially lead to greater stability and reduced volatility in currency markets though.
Overall, conglomerates look well positioned for modest growth heading into the New Year but the potential for more significant gains is looking increasingly likely. Investors will want to closely eye budget negotiations in the U.S., the resolution of debt crises in Europe and demand levels in China, in addition to acquisition activities, to gain a better sense of which companies within the industry will offer the greatest upside in 2013.
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