Your SlideShare is downloading. ×
The Automation Industry from a Wall Street Perspective
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

The Automation Industry from a Wall Street Perspective

850
views

Published on

Mark Douglass of Longbow Research discusses global recession and recovery as well as the "new normal."

Mark Douglass of Longbow Research discusses global recession and recovery as well as the "new normal."

Published in: Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
850
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
28
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • (BEZ example on funding automation projects);
  • Inventory change is huge and accounted for much of GDP growth in 2009 and into 2010, 2Q10 GDP likely cut in half b/c latest data on imports/exports was bad (more imports); inventory growth coming to an end so GDP unsustainable unless real growth comes around
  • 2.5-3% in 2010 (3% likely high end)
  • Capacity utilization 74.2 to 74.4, mfg 71.4 to 72.2%
  • Up 30% in 2010E
  • Downside of commodity prices is taken away.
  • Transcript

    • 1. Industrial Markets Outlook: The Search for the New Normal 5th Annual ISA Marketing & Sales Summit D. Mark Douglass, Ph.D. Vice President, Sr. Equity Analyst, Longbow Research September 1, 2010 1
    • 2. 2
    • 3. WHAT WE SAID LAST YEAR APPEARS TO BE TRUE • OUR VIEW: THERE’S 2010 AND THERE IS THE RECOVERY • 2009 SEVERE RECESSION WITH 1H09 GLOBAL ECONOMY REALLY UGLY  U.S.PMI PLUMMETTED AS DID EUROPEAN AND CHINA PMI  CREDIT FINANCIAL CRISES MET WITH MASSIVE STIMULUS PROGRAMS  BOTH HERE (U.S. $787B, TALF,TARP) AND  ABROAD (SOUTH AMERICA $775B; EUROPE/AME $900B; ASIA PACIFIC $850B)  RECESSION LIKELY ENDED MID-2009 FOLLOWED BY MODEST RECOVERY • 2010 MOST LIKELY A TRANSITION YEAR  MFG.CAPACITY UTILIZATION OF AROUND 70% WELL BELOW NORMAL  2010 WILL FAVOR SHORT CYCLE/PRODUCTIVITY SPENDING  FASTER RECOVERY OF TECHNOLOGY, COMPONENTS AND CONSUMABLES  BULL-WHIP EFFECT IS KEY DRIVER: RECOVERY OF PRODUCTION AND SUPPLY CHAIN FROM VERY DEPRESSED LEVELS • 2011 ECONOMIC OUTLOOK DEPENDENT ON REAL GROWTH IN DEMAND • 2011-2012 SEARCH FOR NEW NORMAL LEVEL OF DEMAND  MOST MARKETS UNLIKELY TO RETURN TO RECENT 2006 TO 2008 PEAKS  2006 WAS PEAK FOR HOUSING, AUTO, TRUCKS, CONSTRUCITON EQUIPMENT 3
    • 4. GREAT GLOBAL RECESSION APPEARS TO BE OVER  Great Recession likely ended in June/July 2009 followed by a gradual economic recovery  Strong growth in China, India, and Brazil leading global economic upturn  U.S. is generally positive with clear strength in manufacturing  Europe and Japan show signs of slow economic growth  Numerous concerns which may lead to volatility in world financial markets  Uncertain financial stability of Sovereign Nationals, particularly Greece, Portugal, Spain, and Ireland;  Even in the U.S. there are rising concerns about Fannie/Freddie and State Financial conditions e.g. California, New York, Illinois  What is the exit path for all the fiscal/monetary stimulus? Where does the greenback go?  Concern over Bank exposure to commercial real estate  China housing bubble?  Domestically, economy being driven by:  Capital goods markets leading the U.S. recovery with the manufacturing ISM Purchasing Managers Index (PMI) showing a strong ―V‖ shaped recovery  Inventory change has become a key contributor to GDP growth  Residential markets are sluggish since incentives have expired  Sentiment has improved modestly across the U.S. economy but stalling • University of Michigan 2010 Consumer Sentiment survey in low to mid 70‘s rising to 76 in June before falling to 66.5 in July. • Small Business Optimism Index stuck between 87 and 92 in 1H2010 (JULY 88.1) 4
    • 5. ELECTRICAL STOCKS NOT A BAD PLACE TO BE IN PAST 5 YEARS • Been a wild ride on Wall Street since 2008 • Electrical component stocks outperformed S&P 1-yr 2-yr 5-yr Electrical Components Index +29% -7% +25% S&P 500 +9% -17% -11% 600 25 5-Year Returns 80% 500 20 60% 40% Forward P/E Index Price 400 15 20% +25% 0% 300 10 -20% -11% -40% 200 5 -60% Electrical Component Index Forward P/E Electrical Component Index S&P 500 Source: Thomson; Index includes: EMR, ROK, AME, ROP, CBE, RBC, BEZ, HUB.B,TNB, WGOV, BGC, BDC Source: Thomson 5
    • 6. C&I LOAN DATA SHOWS CREDIT STANDARDS LOOSENING AS RECESSION ENDS • Credit indeed appears to be loosening for smaller business • But uncertain economic, regulatory and tax outlook likely keeps many businesses from spending • Most recent data +8.8% large and medium, +9.1% for small C&I LOAN DATA – 1990 TO PRESENT
    • 7. U.S. ISM PMI HAS SEEN A SHARP RECOVERY BUT PULLING BACK FROM HIGHS U.S. ISM PMI INDEX – 1992 TO PRESENT 65 EXPANSION 60 55 50 PMI index 45 New orders PMI 40 May 65.7 May 59.7 CONTRACTION Jun 58.5 Jun 56.2 Jul 53.5 Jul 55.5 35 Aug 53.1 Aug 56.3 30 ISM
    • 8. EUROZONE AND CHINA PMI HAVE ALSO SEEN STRONG RECOVERIES 60 EXPANSION Manufacturing PMI 50 CONTRACTION Eurozone China 40 May 55.8 52.7 June 55.6 50.4 July 56.7 49.4 Aug 55.1 51.9 30 Markit, HSBC Eurozone China
    • 9. GDP REVISION SHOWED WEAKER ECONOMY BUT SAME END TO RECESSION • Economy was weaker over the past three years driven by weaker housing and consumer spending. Year Reported GDP Revised GDP 2007 2.1% 1.9% 2008 0.4% 0.00% 2009 -2.4% -2.6% • But recession likely still ended in Mid-2009 QUARTER INVENTORY % GDP FINAL SALES PCE 1Q09 -$125.8 B -2.5% -3.9% -0.5% 2Q09 -$161.8 B -1.4% 0.2% -1.6% 3Q09 -$128.2 B 1.1% 0.4% 2.0% 4Q09 -$36.7 B 2.8% 2.1% 0.9%
    • 10. Productivity is STRONG coming out of recessions Date After Recession Growth 1975 2Q 6.5% 1980 4Q 4.4% 1983 1Q 5.1% 1991 2Q 5.9% 2002 1Q 7.2% 2009 2Q 7.6% Note 8.4% revised 2Q09 10
    • 11. PRODUCTIVITY GAINS HAVE BEEN SIGNIFICANT SINCE 2Q09 DRIVING 2009-2010 EARNINGS SURPRISES  Productivity usually weak in a recession Date Productivity 1981 0.16% 1991 0.23% 2001 3.60% 2008/09 3.50%  Productivity improved since 2Q09 while costs plummeted Date Productivity Unit Labor Costs 2Q09 8.4% 0.6% 3Q09 7.0% -3.3% 4Q09 6.0% -4.2% 1Q10 3.9% -3.7% 2Q10 -0.9% 0.2% 11
    • 12. IMPROVED PRODUCTIVITY SEEN IN PROFITABILITY REBOUND • Increased productivity also evident in strong operating margin rebound for many companies, post 2009 restructuring • Record margins for many or at least back to 2008 levels, though earnings closer to 2006-7 levels for most due to lack of revenue recovery – In 2009 temporary (zero bonus pay-outs, furloughs, pay reductions, travel restrictions, eliminate overtime) and structural measures (layoffs, plant consolidations, increased automation ) used to reduce costs – Structural measures will continue to pay off until capacity utilization reaches ―normal‖ levels (likely 2011 and maybe 2012 for some) and then costs added back to expand capacity – Employee compensation (base wages, healthcare) likely outpaces inflation, hiring will be kept in check (even in China!)  should benefit automation companies 12
    • 13. RECESSION LIKELY OVER BUT SLOW RECOVERY UNDERWAY 3Q09 4Q09 1Q10 2Q10 2Q10 (revised) Real GDP 1.6% 5.0% 3.7% 2.4% 1.6% Inventories 1.1% 2.8% 2.6% 1.1% 0.6% (in Billions) -$128.2 -$36.7 $44.1 $75.7 $63.2 Final Sales 0.4% 2.1% 1.1% 1.3% 1.0% Domestic 1.8% 0.2% 1.3% 4.1% 4.3% FS Net Exports -1.4% 1.9% -0.3% -2.8% -3.4%
    • 14. U.S. ECONOMIC OUTLOOK: Recovery Beginning  REAL GDP SLOW GROWTH 2005 2006 2007 2008 2009E 2010E 2011E YEAR/YEAR 3.1% 2.7% 2.1% 0.4% -2.4% 2.8% 2.5% 4Q/4Q 0.1% 2.6% 2.7%  CAPITAL SPENDING TO SLOW EQUIPMENT BUSINESS FIXED STRUCTURES AND SOFTWARE INVESTMENT 2004 1.1% 7.7% 7.3% 2005 1.5% 8.5% 6.5% 2006 9.2% 7.4% 2.3% 2007 14.9% 2.6% -2.1% 2008 10.3% -2.6% -5.1% 2009E -20.4% -15.3% -17.1% 2010E -12.8% 14.1% 5.2% 2011E 0.5% 9.5% 7.0%
    • 15. U.S. ECONOMIC OUTLOOK: (CONT’D)  MANUFACTURING OUTPUT STARTING TO RECOVER: 2005 2006 2007 2008 2009E 2010E 2011E YEAR/YEAR 4.0% 2.5% 1.4% -2.2% -9.2% 5.5% 4.5%  INFLATION PRESSURES FURTHER SUBSIDE: MFG IP 1Q 2Q 3Q 4Q 2008A -1.2% -5.4% -9.3% -18.1% 2009A -22% -9% 9% 7.1% 2010E 6.1% 7.9% 3.5% 4.5% 2005 2006 2007 2008 2009A 2010E 2011E CPI 3.0% 2.7% 2.7% 3.8% -0.3% 1.7% 1.6% CORE PCE 2.3% 2.3% 2.4% 2.4% 1.7% 1.1% 1.3%
    • 16. IMPROVING OUTLOOK FOR GLOBAL GROWTH BUT 2011 GROWTH MODERATING 2006 2007 2008 2009 2010E 2011E 2015E GLOBAL GROWTH 5.1% 5.2% 3.0% -0.6% 4.6% 4.3% 4.6% US 2.7% 2.1% 0.4% -2.4% 3.3% 2.9% 2.4% EU 2.8% 2.7% 0.6% -4.1% 1.0% 1.3% 1.7% GERMANY 3.0% 2.5% 1.2% -5.0% 1.4% 1.6% 1.2% FRANCE 2.2% 2.3% 0.3% -2.2% 1.4% 1.6% 2.2% ITALY 2.0% 1.5% -1.3% -5.0% 0.9% 1.1% 1.3% UK 2.9% 2.6% 0.5% -4.9% 1.2% 2.1% 2.5% SPAIN 4.0% 3.6% 0.9% -3.6% -0.4% 0.6% 1.7% CENTRAL/EASTERN EUROPE 6.5% 5.5% 3.0% -3.7% 3.2% 3.4% 4.0% JAPAN 2.0% 2.4% -1.2% -5.2% 2.4% 1.8% 1.7% CHINA 11.6% 13.0% 9.6% 8.7% 10.5% 9.6% 9.5% INDIA 9.8% 9.4% 7.3% 5.7% 9.4% 8.4% 8.1% RUSSIA 7.7% 8.1% 5.6% -7.9% 4.3% 4.1% 5.0% MID EAST 5.7% 5.6% 5.1% 2.4% 4.5% 4.9% 4.8% BRAZIL 4.0% 6.0% 5.1% -0.2% 7.1% 4.2% 4.1% MEXICO 4.9% 3.3% 1.5% -6.5% 4.5% 4.4% 4.0% CANADA 2.9% 2.5% 0.4% -2.6% 3.6% 2.8% 2.1% *SOURCE: IMF 0710
    • 17. VIRTUALLY EVERY INDUSTRIAL END MARKET WAS UNDER PRESSURE IN 2009  Virtually every end market faced lower demand in 2009.  Housing fell over 30% to about 900,000 starts in 2008 and is still looking for a bottom. Best guess is another 40% decline in 2009 to about 557,000 with stabilization now occurring  Auto outlook remains ugly with 2008 production about 12.6 million falling to about 8.5 million in 2009 as the automotive bankruptcies were offset by the cash for clunkers auto program.  Construction equipment sales and production in 2008 were down 22% to 24% with 2009 now down at least another 45% to 50% as export sales wane and non-residential construction spending falls about 5% (down 11% private and up 3.5% public) in 2009 and likely a similar amount in 2010. Worry about rental, mining and material handling.  Heavy truck sector saw a decline in production to about 205,000 in 2008 compared to 212,000 NAFTA shipments in 2007, while the decline medium truck (class 5 to 7) was 25% from 206,000 to 157,000 units. The lack of credit, the unfolding domestic recession and favorable fuel economy reviews for the 2010 engines has all but eliminated the need for any emissions related pre- buy with 2009 falling another 43% to about 118,000,units with a similar decline in the medium truck sector  Global steel demand plummeted 8% in 2009 after falling 1% in 2008 with developed economies particularly hard hit: -36% U.S., -26% Japan, -29% Germany; though China, the world‟s largest producer, grew 14% in 2009. Capacity utilization actually fell to 58.1% in Dec. „08 vs. its peak of 90.8% as late as June ‟08!
    • 18. SLOW INDUSTRIAL CAPCITYY UTILIZATION RECOVERY IN 2010  We have dug a deep hole to climb out of in 2010 and 2011  Capacity Utilization is now in the Low 70‟s compared to more normal 78% to 80%  Virtually Every Industrial Sector is Currently Over-Capacitized Globally
    • 19. 2010 FAVORING SHORT-CYCLE, PRODUCTIVITY & EFFICIENCY  LITTLE NEED FOR CAPITAL EQUIPMENT FOR EXPANSION IN 2010  Need to absorb excess capacity  Only exception may be for new products  Production increases mostly related to end of inventory liquidation; production level will eventually more closely match end market sales  Smaller, lighter equipment likely to outperform heavy equipment which could decline through 2010  2010 WILL FAVOR ENERGY EFFICIENCY, AND PRODUCTIVITY ENHANCEMENT  FASTER RECOVERY FOR TECHNOLOGY, COMPONENTS (MRO AND INVENTORY RESTOCKING) AND CONSUMABLES AS INDUSTRIAL PRODUCTION RISES  LENGTH OF “BULLWHIP” EFFECT IS KEY
    • 20. IF MONEY ISN’T SPENT ON CAPEX, THEN WHAT? • Mergers and acquisitions likely to become bigger ―deals‖ in 2010 and 2011 • Companies‘ working capital plummeted and they cut spending in 2009, generating huge cash flows and leaving them with mountains of cash – According to Bloomberg, largest 1,000 non-financial public companies have amassed $2.86 Trillion (with a T) of cash and equivalents • What to do with all of the cash? With interest rates so puny, investors are calling for companies to deploy cash more meaningfully • With economic uncertainty ahead, M&A is looking more attractive vs. plowing money into more sales & engineering staff and capital projects 20
    • 21. M&A ACTIVITY PICKING UP IN 2H10 • Boards are apparently listening to investors… • Monthly announced transaction values have begun to recover and accelerated in the summer – July was busy and August busiest since 2007 in terms of announced deals in dollars • Automation companies getting into the game in 2010 with a wide range of deal sizes – Emerson buys Chloride plc for $1.5 billion, ~3x Sales, ~20x EBITDA; needed to up the ante to protect its turf after ABB‘s bid – Emerson announced the sale of most of its motors businesses to Nidec for ~$700-800M – Honeywell purchases Matrikon for ~$142M – AMETEK, who‘s always buying companies, has closed 5 deals YTD (~$150M in sales vs. only ~$40M in 2009), a range of larger ($270M for motion control supplier Haydon) to smaller deals they didn‘t release transaction details on • Would expect M&A activity to continue through 2010 despite economic uncertainty; companies need to weigh the risk of paying ―too much‖ vs. languishing assets 21
    • 22. ANNOUNCED M&A PICKING BACK UP 22
    • 23. CURRENT ECONOMIC DATA IS MIXED: FOR NOW ITS SLOWER GROWTH NOT DOUBLE DIP THE POSITIVES • A major upward revision in personal saving rate coincided with a sharp decline in overall financial obligations as a percentage of disposable income, suggesting that consumers are in better shape than suggested by earlier data – The savings rate peaked at 7% in 2Q09 and remained above 5% all year – 1Q10 savings rate was 5.5%; 2Q10 was 6.2% • We are seeing decent real growth in 2Q10 GDP data in disposable income (4.4%), excellent growth in exports (9%) and business spending for equipment and software (25%) THE NEGATIVES • 2Q10 growth in housing (21.9%) and state and local government spending (1.3%) is clearly temporary: – Consumer confidence indexes are softening – Housing still mired at low levels of 8 months ago falling back after end of new buyer incentive programs – New $26 B emergency legislation being passed to fund state and local governments to prevent/limit layoffs—($16B to fund Medicaid and $10B for teachers‘ pay to be at least partly ―paid for‖ by increased taxes on overseas earnings) • The current high level of inventory growth ($63B or 4% annual rate) is likely temporary • Poor July jobs reports continues trend of slow recovery in employment
    • 24. THE CONSUMER IS STILL RELUCTANT AND UNLIKELY TO LEAD • CONSUMER SPENDING REMAINS SLUGGISH PERSONAL CONSUMPTION EXPENDITURES: 2008 2009 2010 1Q -0.8% -0.5% +1.9% 2Q +0.1% -1.6% +1.6% 3Q -3.5% +2.0% 4Q -3.3% +0.9% • CHANGING CONSUMER SPENDING PATTERNS  ―just drop off the key, Lee, and set yourself free‖-Paul Simon  Apple up 94%; Starbucks 61%, Mercedes 25%--splurge in hi-end electronics  P&G struggling as consumers cut back name brand shampoo and toothpaste:  Dollar stores instead of Target  $1 Value menu at McDonald‘s vs. TGI Friday‘s with a couple beers
    • 25. CONSUMER NOT IN THE GAME YET • LACK OF CONFIDENCE IN THE ECONOMY – Consumer confidence only at 2001 recession levels – Even the FED is concerned • Spending sluggish through 2010 as relatively high unemployment is likely to continue for several quarters, affecting purchasing power and confidence Consumer Confidence Consumer Spending 10.0 160 8.0 140 120 6.0 100 4.0 80 60 % Y/Y 2.0 40 0.0 20 -2.0 0 -4.0 The Conference Board BEA 25
    • 26. A SLOWING OF MANUFACTURING MAY LIE AHEAD • Auto Sales are up (sensitive to incentives) but stabilizing resulting in likely lower 2H10 production levels with potential for schedule reductions in 4Q • July ISM of 55.5 compares to 56.2 in June, 59.7 in May, 60.4 in April, 59.6 in March, 56.5 in February and 58.4 in January – Orders of 53.5 in July, 58.5 in June, 65.7 in May and April, 61.5 in March – Production 57 in July,61.4 in June, 66.6 in May, 66.9 (April), 61.1 (March) – Employment 58.6 in July, 57.8 in June, 59.8 in May, 58.5 (April), 55.1 (Mar.) – Inventory 50.2 in July,45.8 in June, 45.6 in May, 49.4 (April), 55.3 (March) – Customer Inventories are still low at 39 in July,38 in June,32 in May,33 April – Ratio of April Production/Inventory of 1.14 (vs.1.34 in June) and Orders/Inventory of 1.07 (vs.1.28) continue to suggest an ISM PMI over 50 but slowing. • Global PMI continuing to Improve in Europe even with Sovereign Debt Issues • China Growth continues but showing signs of slowing; PMI under 50 last month. (in millions) Jan Feb March April May June July Auto Sales 10.8 10.36 11.8 11.8 11.6 11.1 11.56
    • 27. HOW MUCH LONGER WILL THE BULL-WHIP EFFECT CONTINUE • Domestic manufacturing plummeted in the fall of 2008 as industrial production turned sharply negative – Capacity utilization dropped to themed 60‘s from near 80% – ISM PMI index plummeted to a low of 32.9 in December 2008 – European PMI bottomed at 32.5 in February 2009; China was also down significantly • Manufacturers underwent an unprecedented inventory liquidation hitting a record $162B annual rate in the second quarter of 2009. • THE BULL –WHIP (Forrester Effect): – Variations in customer demand are amplified, positively or negatively, as one moves upstream in the supply chain (further from the customer) – In heavier industries, the at least one-third drop in sales in most markets caused production to decline by over 50% as inventories were sharply reduced – This resulted in 50% to 75% or more declines in purchases of raw materials and components • The positive BULL-WHIP effect began in late in 2009 and continued in earnest in 2010 – Industrial companies are trying to raise production and stabilize their supply chain much higher levels than the trough of 2009 but well below production levels of 2006 to 2008. – CAT: flat 2010 sales would result in a 10% to 15% production increase and a 30% to 40% increase in supplier purchase – Note: CAT‘s sales are projected to rise 25% in F2010. • It appears that the bulk of the BULL-WHIP effect will taper out in 2H10 most likely by the fourth quarter
    • 28. SLOW CLIMB BACK TOWARD MORE NORMAL DEMAND • Real growth in demand will most likely be the driver of economic growth in 2011 – Supply chains will likely have been stabilized by 2011 – Focus is on improving factory thru-put to reduce field inventories – Companies employ lean techniques striving to operate with reduced inventory levels compared to history • Impact of Government ―stimulus‖ program will wane without a new round of incentives • Key risk is government policy decisions (further mistakes?) • Will movement to ―Re-Shoring‖ effect to reduce the length of the global supply chain have a material effect?
    • 29. 2011-2012: FINDING THE NEW LEVEL OF NORMAL DEMAND • New more NORMAL level of demand perceived to be lower than end market demand realized in 2006-2008 – Auto unlikely to return quickly to 16 to 17 million car sales that prevailed from 1999-2005; perhaps 12.0 million to 14.0 million is the new norm; – Housing unlikely to return quickly to 2 million starts; New norm may be 1.3 to 1.6 million over the next few years with cautious funding keeping starts below 1 million at least into 2011. – Truck market likely to return to more normal levels of demand as early as 2011 e.g. class 8 trucks in the 175,000 to 225,000 range. Prior level peaks of over 300,000 unlikely until at least the next emission cycle; – Construction and mining, engines and turbines, railcars and other heavy equipment face a slow recovery through 2012 to levels likely below 2006 to 2008. – Steel production follows heavy equipment and infrastructure spending with slow recovery through 2012 especially if governments‘ borrowing against the future to spend today limits infrastructure expenditures post 2010 • Electrical markets probably resume growth post 2010 driven by improving capital spending trends and the initial recovery of both residential and non-residential markets. • Energy/Alternative Energy markets await resolution of government policies and priorities to resume growth. • Farm equipment end market demand growth dependent on global economic growth, global demand and weather. Growth could resume as early as 2011 as recent global weather issues in the Northern Hemisphere have offset the risks associated with the potential of large global crops depressing commodity prices.
    • 30. Automotive THE UGLINESS IS OVER; FOR NOW ITS JUST UGLY 30
    • 31. SALES CYCLE IS IN MASSIVE DECLINE
    • 32. SOURCE:DESROSIERS 32 AUTOMOTIVE CONSULTANTS
    • 33. SOURCE:DESROSIERS 33 AUTOMOTIVE CONSULTANTS
    • 34. SOURCE:DESROSIERS 34 AUTOMOTIVE CONSULTANTS
    • 35. AUTO INDUSTRY FACES SOME DIFFICULT YEARS OE GLOBAL OEM PRODUCTION NAFTA PRODUCTION (in REGION 2008 2009E 2010E Year millions DETROIT 3 16.6 11.8 13.3 2004 15.8 EUROPE OEM 18.6 15.9 16.9 JAPAN/ KOREA OEM 21.1 17.5 19.9 2005 15.75 OTHER (INDIA,CHINA) 10.4 9.6 10.6 2006 15.25 TOTAL 66.7 54.8 60.7 Source: CSM 2007 15 2008 12.6 2009E 8.5 European build 2009: 15.9 Million, -25% 2010E 11.3-11.5 2010: 16.9 to 17.5 Million 2011E 12-13 2011: 17.5 to18.5 Million
    • 36. Power Generation STILL IN DESPERATE NEED OF AN ENERGY POLICY 36
    • 37. AFTER 2 YEARS OF USAGE DECLINE.. 37
    • 38. RESERVE MARGINS CONTINUE TO IMPROVE… Energy Information Administration (EIA) 38
    • 39. PLANNED CAPACITY ADDITIONS HAVE SLOWED FUEL (in 2009E 2010E 2011E 2012E 2013E MW) Coal 4,765 5,932 2,837 7,156 630 Natural Gas 11,388 9,950 8,804 10,208 5,191 Nuclear 1,270 Wind 9,459 2,259 1,591 25 16 Petroleum 748 568 200 Solar 145 468 375 950 Other 594 364 184 1,132 457 TOTAL 27,099 19,841 13,991 20,741 6,294 39
    • 40. AVERAGE 10% REDUCTION IN UTILITY CAPITAL SPENDING IN 2009-2010 40
    • 41. ACTUAL AND PLANNED TRANSMISSION EXPENDITURES Source: EEI 41
    • 42. INSTALLED WIND CAPACITY HAS GROWN EXPONENTIALLY SINCE 1996 42
    • 43. ALTHOUGH THE US HAS HIGHEST CAPACITY, CHINA’S MARKET IS BUILDING OUT FASTER 43
    • 44. TO REACH 20% BY 2030, THE US WOULD HAVE TO INCREASE WIND ENERGY BY ALMOST 10 TIMES! 44
    • 45. PRODUCTION OF WIND TURBINES FOR US CONSUMPTION IS STILL PRIMARILY DONE OVERSEAS 45
    • 46. RENEWABLE ENERGY TARGETS/GOALS HAVE BEEN SET IN THE MAJORITY OF STATES 46
    • 47. WIND FACES UNCERTAIN GROWTH IN 2010 WITH FAVORABLE STATE AND FEDERAL POLICIES US wind sector on path for 165GW of installed capacity by 2025 Total wind capacity would be about 200 GW representing about 5% of US energy sources. NEAR-TERM POLICIES CREATE UNCERTAINTY Problems include Transmission congestion and fall electrical demand Need Coordinated NATIONAL Transmission policies and National Renewable Energy Policy/Federal Energy Policy BIG CAPACITY ADDITION DROP LIKELY IN 2010 FROM 9,922MW IN 2009 Only 500MW installed in 1Q10 Only 700MW installed in 2Q10
    • 48. CLEAN ENERGY, JOBS, AND OIL COMPANY ACCOUNTABILITY ACT • NEW SENATE BILL INTRODUCED AT END OF JULY • NO CAP ON CARBON EMISSIONS FOR ELECTRIC POWER SECTOR • NO RENEWABLE ENERGY STANDARD (RES) WITH 15% TARGET BY 2021 • China wind/solar low carbon technology investment is currently $11.9B compared to $4.9B in the U.S. and $4.5B in Europe • 28 states and District of Columbia have RES targets that are higher than 15% target missing from the Senate Bill
    • 49. STEEL: PRODUCTION OFF DRAMATIC LOWS BUT APPEARS TO BE STALLING
    • 50. CHINA IGNORED THE RECESSION AND KEPT PRODUCING STEEL • Global steel demand plummeted 8% in 2009 after falling 1% in 2008 – Developed economies particularly hard hit: -36% U.S., -26% Japan, -29% Germany – China, the world‘s largest producer, grew 14% in 2009 • 2010 should be dramatically better, ~10% y/y and 2011 ~5%; China accounts for a little more than 45% of global production thus a very big driver • Global y/y growth beginning to fall on tougher comps but also total production fell m/m in June and July 50 Source: worldsteel.org
    • 51. SLOW RECOVERY IN STEEL CAPACITY UTILIZATION • Global capacity utilization actually fell to 58.1% in Dec. ‗08 vs. its peak of 90.8% as late as June ‘08  in 6 months!! • U.S. average 87-88% in ‗95-‘07, now stuck in low 70‘s Steel Capacity Utilization 100% 90% 80% 70% 60% 50% 40% 30% U.S. Global Federal Reserve, worldsteel.org 51
    • 52. DON’T EXPECT TOO MUCH SPENDING OUT OF U.S. STEEL PRODUCERS • After huge spending spree in 2007, U.S. steel capex has fallen back to more normal levels • Given relatively recent investments and low capacity utilization, capex spending over next couple years should be very modest 6.0 14.0% 12.0% 5.0 10.0% 4.0 8.0% $ Billions 3.0 6.0% 2.0 4.0% 1.0 2.0% 0.0 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Capex Capex (% revenues) AISI, companies representing 50% of 2009 Raw Steel Production 52
    • 53. Machine Tools: SURPRISINGLY STRONG RECOVERY IN 2010
    • 54. MACHINE TOOLS: A SURPRISINGLY STRONG REBOUND  STRONG UPTURN IN 2010 AFTER 58% DECLINE LAST YEAR WITH METALCUTTING DOWN 61%  UPTURN DRIVEN BY BIG STEP UP IN FOREIGN DIRECT INVESTMENT, AND A DOUBLING OF SPENDING BY AEROSPACE AND CONSTRUCTION EQUIPMENT COMPANIES
    • 55. REBOUNDING OFF DEEP TROUGH, BUT ONLY APPROACHING 2005-LEVELS 55
    • 56. MACHINE TOOLS: A SURPRISINGLY STRONG REBOUND • Machine tool markets should still see reasonably strong growth into 2011 as they climb out of deep hole but still may not even be at 2006 levels until 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E Metal cutting $2,445 $1,927 $1,790 $2,659 $2,871 $3,762 $4,074 $3,948 $1,538 $2,405 $3,000 % Ch -31.4% -21.2% -7.1% 48.5% 8.0% 31% 8.3% 3.1% -61% 56.0% 25% Metal forming $223 $237 $190 $185 $196 $182 $241 $264 $234 $205 $246 % Ch -51.2% 6.0% -20.0% -2.2% 5.7% -6.9% 31.9% 9.8% -11% -12.0% 20% Total $2,669 $2,164 $1,980 $2,843 $3,067 $3,944 $4,315 $4,212 $1,772 $2.610 $3,246 % Ch -33.7% -18.9% -8.5% 43.6% 7.9% 28.6% 9.5% -2.4% -58% 47% 25%
    • 57. SEMI EQUIPMENT: After 2-year Decline, Sales Doubling; Does the Cycle Extend to 2012?
    • 58. EQUIPMENT BOOK-TO-BILL STILL HUMMING ALONG • 2-yr decline including a precipitous drop in ‗09 (-46% y/y) resulted in severe inventory depletion in the channel • Talk about bullwhip effect! Semi equipment is roaring back in 2010 • July demonstrating continued strength – Book-to-bill now 1.23 – Orders +5.9% m/m (+224% y/y), billings +1.8% m/m (178% y/y) – Orders at highest level since Jan. 2001 2,000 May 1.13 1.20 1,800 Jun 1.18 1,600 July 1.23 1.10 1,400 1.00 1,200 0.90 ($ millions) (book-to-bill) 1,000 0.80 800 0.70 600 0.60 400 200 0.50 0 0.40 Bookings 58 Billings Book-to-bill SEMI
    • 59. SHOULD STILL SEE GROWTH IN 2011 AFTER 2010 SURGE • Trends supporting growth – Technology upgrades, e.g. smaller feature sizes – LED‘s look ―bright‖ – Display technologies (smartphones, iPod/Pad‘s, TV‘s): LCD‘s, OLED‘s – Solar (crystalline as well as thin film) • Equipment industry should roughly double in 2010 vs. 2009 in which it experienced a 46% drop • According to SEMI, only modest 9% growth in 2011 as purchasing to keep up w/ technology changes to capacity purchases • Current cycle peak expected in 2012 but not quite to 2007 levels in billions Equipment Type 2006 2007 2008 2009 2010E 2011E Wafer Processing $28.74 $31.95 $22.03 $11.84 $24.46 $27.29 Assembly & Packaging 2.46 2.84 2.04 1.41 2.95 2.81 Test 6.42 5.06 3.45 1.55 3.23 3.44 Other 2.85 2.92 2.00 1.11 1.85 1.99 Total Equipment $40.5 $42.8 $29.5 $15.9 $32.5 $35.5 Y/Y Growth 23% 6% -31% -46% 104% 9% SEMI (July 13, 2010 forecasts) 59
    • 60. CONSTRUCTION EQUIPMENT: WILL SOMEONE PLEASE TELL THE DOMESTIC CONSTRUCTION SECTOR THAT THE RECESSION IS OVER?
    • 61. NA CONSTRUCTION STILL FACES AN AGONIZINGLY SLOW RECOVERY • 2002: A good year for all (housing 1.71 million) except non-residential which was impacted by high office vacancies, consolidating retail sector, and weak industrial plant construction exacerbated by 09/11. • 2003: Total construction remained strong. Both residential (1.85 million starts) and public construction were healthy while Non-residential continued to decline • 2004: Modest growth as non-residential spending finally turns up 3%-4% (mostly price). Residential stays surprisingly strong at 1.95 million starts, as expected H2 fade never materializes. • 2005: Residential was expected to decline, but sector remained resilient as housing starts actually rose to 2.07 million. Nonresidential continued to recover rising 6.4%. • 2006/07: Housing starts declined 12% to 1.82 million in 2006 and fell another 26% in 2007 to 1.34 million. Non-Residential construction grew about 16% in 2007, up from 12.3% in 2006, nearly offsetting the housing decline. • 2008/09: Housing, which fell 33% to about 900,000 starts in 2008, declined about 40% in 2009 to about 550,000 though the sector has stabilized. Non-residential construction spending which rose 12% in 2008 (15% private, 7% public), fell 5% in 2009 (-12 private; +3 public). • 2010/11: Housing has finally stabilized and begun to improve to perhaps 625,000 to 675,000 in 2010. The potential improvement in 2011 to perhaps 850,000 to 900,000 is less certain ; Non-residential spending is expected to fall at least 5% to15% in 2010 (private down 15% to 25%; public +/-5%) and perhaps increase modestly 3% to 10% in 2011. 61
    • 62. MOST NON-RESIDENTIAL MARKETS WILL STAY SOFT THROUGH 2010 Category % Non-Res 2007A 2008A 2009E 2010E 2011E Educational 15% 13% 8% -1.3% Commercial 13% 16% -4% -33.4% Highway/Street 11% 6% 6% 3.4% Office 11% 19% 12% -21.5% Power 10% 34% 33% 10.7% Healthcare 6% 11% 8% -2.3% Manufacturing 8% 20% 51% 21.9% Lodging 5% 58% 29% -29.8% Transportation 5% 16% 9% 3.9% Communication 4% 22% -8% -21.0% Sewage/Waste 4% 6% 5% -1.2% Amusement/Rec 3% 14% 6% 13.1% Water Supply 2% 4% 9% 6.9 TOTAL +16% +12% -5.4% -5 to 15% +3 to 10% Private +15% -11.6% -15 to 25% Public +7% 3.4% +/- 5% Source: BEA; AGCA; LBR 62
    • 63. 2009 CONSTRUCTION DEMAND WAS VERY WEAK CONSTRUCTION EQUIPMENT %CHANGE 2009/08E LIGHT EQUIPMENT WORLDWIDE -45% o North America -49% o Western Europe -49% o Latin America -54% o Rest of World -36% HEAVY EQUIPMENT WORLDWIDE -30% o North America -47% o Western America -56% o Latin America -56% o Rest of World -14% Source: CNH; Caterpillar, Deere, Terex, LBR Forecasts
    • 64. 1H10 CONSTRUCTION ENVIRONMENT LESS THAN ROBUST • 1H10 CONSTRUCTION SPENDING IS MIXED – June 2010 at a $836 B annual rate, down 7.9% from a year ago • MAJOR CONSTRUCTION SEGMENTS ARE DIVERGING • Public spending buoyed by stimulus funds for highway, transportation, wastewater – June spending up 1.5% over May but 4.1% below June 2009 – Biggest drag on public spending is educational • Private non-residential spending down 24% in June vs. a year ago with most categories down • Private residential up 26% YoY led by single family up 26% compared to a year ago. • STIMULUS SPENDING MAY HELP 2H10 TO SOME DEGREE – Only 42% of highway stimulus funds have been spent to date – Most private non-residential sectors still falling though the rate of decline will likely taper off 64
    • 65. OUTLOOK FOR 2H10 AND 2011 IS IMPROVING • The environment for construction activity for the rest of 2010 and 2011 will improve over 2009, but be less than robust – Key is financing availability; institutions will likely to be reluctant to rapidly expand availability – Defining government rules for stimulus programs will determine the success of getting stimulus dollars into this sector • Housing will likely show improvement over the next two years rising from about 550,00 starts in 2009 to perhaps 625,000 to 675,000 plus in 2010 and perhaps 850,000-900,000 or more in 2011. – The NAHB most recent forecast of housing starts for 2010 of 656,000 (RECENTLY LOWERED TO 632,000), up from 554,000 in 2009 is no longer viewed as extremely conservative. – NAHB 2011 forecast of 906,000 for 2011 is less certain today • Non residential construction is expected to fall 5 % to 15% in 2010 and perhaps stabilize in 2011 before resuming growth sometime that year. • Infrastructure spending will likely be relatively flat into 2011 or at least until a new Highway Bill is passed. History suggests that growth will resume about a year after the new Highway Bill has been funded. • For 2011 we expect at least a mid-single digit gain in construction spending led by residential spending and a modest turnaround in the non-residential sector. • By 2012, new legislation should relieve the bottlenecks in infrastructure and other public works markets leading to vastly improved activity. 65
    • 66. 1H10 CONSTRUCTION EQUIPMENT SALES WERE DRIVEN FROM DEMAND ABROAD Light Equipment 1H10 1H10 Detail Light Heavy Worldwide +33% Brazil 106% 162% North America +7% Argentina 136% 120% Western Europe +10% Australia/NZ 137% 98% Latin America +98% CIS 264% 207% ROW +69% China 95% 102% Turkey 244% 393% Heavy Equipment 1H10 South Africa 142% 44% North America -1% Source: CNH, CAT, DE, LBR Western Europe +1% Latin America +126% ROW +97% 66
    • 67. EMERGIN MARKETS LEAD 2010 CONSTRUCTION EQUIPMENT RECOVERY Light Equipment % Change Worldwide 20% to 25% North America 5% to 10% Western Europe 0% to 5% Latin America 60% to 70% ROW 30% to 35% Heavy Equipment % Change Worldwide 30% to 35% North America 0% to 5% Western Europe -5% to 0% Latin America 60% to 65% ROW 40% to 45% Source: CNH, CAT, DE, LBR 67
    • 68. DOMESTIC CONTRUCTION EQUIPMENT DEMAND DRIVEN BY EXPORTS AND END OF INVENTORY LIQUIDATION • DOMESTIC Construction equipment end market demand in F2010 looks up modestly in F2010. • Production will increase 20% to 30% or more due to the end of inventory liquidation and exports which will allow OEM‘s to produce at or near retail demand. – The domestic upturn will initially favor smaller to medium equipment (more units, less dollars) which has been declining for the past three to four years. – Equipment for rental companies will likely see an upturn in demand as contractors may favor rental rather than outright purchases – Heavy equipment demand will likely be soft in F2010; Global Mining equipment demand has fully recovered because of demand from emerging markets. • F2011 will likely be a better year for all classes of machines with sales and production rising at least double-digits (10% to 15%) assuming sustained growth in the global economy. 68
    • 69. FEDERAL GOVERNMENT SUPPORT FOR INFRASTRUCTURE CONSTRUCTION IS LAGGING  President Obama FY2010 Budget requested $118.7 billion for construction or 0.6% less than the $119.4 billion that Congress passed for FY2009;  The budget included an estimate of the Highway Account of the Highway Trust Fund will only be able to support spending of $32 billion in FY10, down from $40 billion in FY2009, without a major transfer from the general fund or other revenue source.  The Highway Trust Fund had a shortfall of about $5 to $7 B for the FY09 ending September 30th; Congress passed a supplemental funding resolution to keep funds flowing.  The Highway Trust fund has an estimated $8 to $10 B shortfall for FY10 ending Sept 30, 2010; Congress is expected to again pass emergency funding to preserve spending.  The current 6 year $286B Highway Bill expired Sept 30, 2009. The Obama administration has supported a continuing resolution until MARCH 2011. – New bill is expected to be 6 years and at least $410 to $450 billion. – New funding mechanisms are needed to provide the money— – TRANSLATION—NEW TAXES (or it doesn’t get passed!) 69
    • 70. CONSTRUCTION RELATED STIMULUS FUNDING Total $135 Billion (Segments) Energy/ Water/ $21 Transportation $49 Billion Buildings $35 Billion Technology $30 Billion Environment Billion $5 Airports $ 2 Billion Discretionary $0-$9 Billion Weatherization $5 Billion Corps Billion $7 Transit/Rail $18 Billion Housing $8 Billion Energy Grants $6 Billion Water/Waste Billion $6 Highway $28 Billion Other Federal $6 Billion Wireless/Broadband $7 Billion Nuclear Waste Billion GSA $6 Billion Electric Grid $11 Billion Department of Defense $7 Billion SOURCE: AGCA 70
    • 71. Fluid Power: DIFFICULT 2009; THE BULL-WHIP DRIVES 2010
    • 72. Fluid Power End Use Breakdown of Some Key Sectors (percent) 2007E 2008E 2009E 2010E 2011E Mobile Farm machinery 8% 5% -20% 20% 8% Lawn & garden -10% -5% -22% 15% 7% Construction -16% 12% -65% 50% 15% Mining 5% 10% -40% 60% 12% Mobile/aftermarket 0% -4% -45% 35% 10% Other 3% 10% -25% 20% 20% Total--Mobile Industrial Machine tools 9% -2% -40% 25% 15% Paper machinery 7% -10% -20% 10% 7% Food 7% 3% -10% 10% 7% Chemical 12% 5% -20% 15% 15% Plastics -5% -10% -20% 10% 10% Packaging 0% 0% -20% 10% 10% Industrial aftermarket 7% 5% -25% 30% 15% Other 6% 3% -20% 25% 10% Total--Industrial Total Total Change in Fluid Power Market -0.8% 6.0% -36% 33.1% 13% Source: National Fluid Power Association; ESL estimates. 72
    • 73. Farm Equipment GLOBAL WEATHER PROBLEMS REDUCE DOWNSIDE RISKS 73
    • 74. FARM EQUIPMENT: FROM CROP SURPLUS TO TIGHT SUPPLIES  U.S. grain supplies were well above normal as recently as 2005/06.  Rising ethanol demand, lower plantings and global weather problems have reduced global carryovers to very low levels for wheat and corn.  Farm income was relatively flat through 2006 buoyed by government payments. Farmers rebuilt their balance sheets and cash flow during this period was strong.  2004 was the last recent strong year for farm equipment demand driven by big Federal depreciation and tax incentives. Demand was relatively flat in 2005 and 2006  Farm income grew in 2007 and into 2008 driven by surging commodity prices  The second half 2007 upturn in farm equipment demand gathered momentum in 2008 with 19% to 25% plus gains in large equipment in NA and very strong sales in Brazil.
    • 75. U.S. FARM EQUIPMENT SALES 2008 TRACTORS UNITS %CHANGE LESS THAN 40 HP 99,317 -14.3% 40-100 HP 67,735 -13.3% 100 HP PLUS 26,261 25.7% TOTAL 2 WHEEL 193,313 -10.0% 4 WHEEL 4,427 21.1% TOTAL TRACTORS 197,740 -9.5% COMBINES 8,464 19.2% Source: AEM
    • 76. CREDIT CRISIS TAKES ITS TOLL ON 2009 GLOBAL FARM EQUIPMENT SALES • U.S. AND CANADA OUTLOOK: TRACTORS DOWN 20% , COMBINES UP MID-TEENS Tractors US Canada 40-100HP -28.4% -18.0% 100HP+ -12.9% -12.6% Total Tractors -21.3% -19.2% Combines +14.8% +17.3% • South America demand declined – Tractors down 17%; combines down 36% – Credit access in Brazil; Drought conditions in Argentina, Brazil, and Uruguay • Western Europe Tractors Down 14%; Combines down 12% in 2009 • ROW tractors up 8%; Combines down 45% – Central Europe and CIS down significantly (no credit)
    • 77. FARM CASH RECEIPTS ARE STILL NEAR RECORD LEVELS Source: DEERE & CO
    • 78. 1H10: UNCERTAIN OUTLOOK FOR 2010 FARM EQUIPMENT SALES • Weather plays an inordinately important role in the future of commodity prices and farm equipment demand. • 2009 saw good crops globally: 2010 COULD BE EVEN BIGGER! • Crop prices and the resulting farm income are key indicators of farm equipment sales. • The outlook for farm equipment demand for F2010 fiscal year has been clouded and may be at similar levels to F2009 for larger equipment helped by a possible pre-buy before emissions. – Some new products that will meet Tier 4 emission (required for over 174 HP), the remainder of the products will be phased in over the next few years – Non-compliant 2011 products will use credits to meet 2011 standards or even have 2010 engines in 2011 bodies (still uncertain at this point) which will create a sort of extended pre-buy atmosphere as the farmer knows that all products eventually face the higher prices of emission compliant products – With production full for many items through the end of 2010, we believe that some of the demand will transfer over into F2011 when the industry will have several Tier 4 products which will likely cost at least 6-10% more than 2010 products.
    • 79. ATYPICAL JULY/AUGUST 2010 WEATHER CHANGES OUTLOOK FOR COMMODITY PRICES • Weather concerns about current harvest in some key Northern Hemisphere regions have driven recent global Ag commodity price significantly higher • Global wheat and coarse grain production according to the International Grain Council (IGC) has been reduced by 23 million tons from a previous near-record 1,782 million to 1,753 million. – Grain crops have been significantly affected by the adverse July weather in parts of the Black Sea region, the EU and Canada – The impact has been mostly in the northern hemisphere wheat and barley crops in which projections have been lowered by 13 million and 7 million tons respectively. • Reduced grain crop prospects have also reduced consumption forecasts, mainly feed, resulting in a reduced projection for 2010/2011 global consumption to increase 0.8% to 1,774 million tons. (prior forecast for 2010/11 was 1,781 million tons, up 1.1% from 1,761 million in 2009/10) • With global crop forecasts reduced more than consumption, 2010/2011 world carryover stocks for grain are now projected by the IGC to be 18 million tons lower to 369 million tons. This is 21 million tons below the 2009/2010 carryover of 390 million, but FLAT with the 2008/09 carryover of 369 million tons. • Global supplies are viewed by the IGC and most Ag economists to be ample.
    • 80. COMMODITY PRICES JUMP ON WEATHER FEARS Wheat Prices Soar on Weather Fear in …Corn Prices follow…. Northern Hemisphere… …As do Soybean Prices.
    • 81. ATYPICAL SUMMER WEATHER IMPROVES FARM OUTLOOK FOR AT LEAST 2010-2011  Although domestic crop production is still projected to be quite large, weather problems globally have curtailed a potential record crop and crop prices have begun to move higher.  Most important takeaway from recent atypical weather events is that the DOWNSIDE in commodity prices has moderated to levels at or near prices recorded for 2009/10 or even 2008/09 rather than the potential for declines than could have been 4% to 10% or more.  DE and the USDA have raised projections for commodity prices as well as the outlook for farm cash receipts and income for the next two years, the key driver of farm equipment demand.  This will provide a stronger fundamental background for at least stable if not higher farm equipment sales in at least F2011. FORECASTS FOR COMMODITY PRICES WILL LIKELY RISE DE RECENT CROP FORECAST Crop USDA USDA DE 2009/10 DE 2009/10 USDA DE 2010/11 DE 2010/11 2008/2009 2009/2010 Forecast Forecast August 2011 Forecast Forecast (August 2010) (May 2010) mid-point (August 2010) (May 2010) CORN $4.06 $3.55 $3.55 $3.50 $3.80 $3.90 $3.60 WHEAT $6.78 $4.85 $4.87 $4.90 $5.10 $5.25 $4.75 SOYBEANS $9.97 $9.60 $9.50 $9.50 $9.25 $9.25 $8.75
    • 82. FARM EQUIPMENT OULOOK FOR 2010-2011 IS IMPROVING 2010 Outlook Modestly Improving Tractors Growth Combines Growth Worldwide 0% to +5% Worldwide (0 to 5%) North 0% to +10% North 0% to +5% America America <40HP 0% to 5% 40 to 100 HP (0% to 5%) 100 HP+ +5% to 10% Western (10% to 25%) Western (25% to 30%) Europe Europe Latin America +20% to 25% Latin America +25% to 30% ROW (0 to 5%) ROW (10 to 15%) 2011 Outlook Now for Modestly Higher Equipment Sales – Up 5% to 10% or More Globally
    • 83. ETHANOL MANDATE MAY BE HIGHER THAN MARKET CONDITIONS CAN SUPPORT • Renewable fuels mandates per EISA 2007 Undiff- Renewable Advanced Cellulosic Biomass- erentiated Year Total RFS Biofuel Biofuel Biofuel based Diesel Advanced Biofuel 2008 9 9 2009 10.5 0.6 0.5 0.1 11.1 2010 12 0.95 0.1 0.65 0.2 12.95 2011 12.6 1.35 0.25 0.8 0.3 13.95 2012 13.2 2 0.5 1 0.5 15.2 2013 13.8 2.75 1 1.75 16.55 2014 14.4 3.75 1.75 2 18.15 2015 15 5.5 3 2.5 20.5 2016 15 7.25 4.25 3 22.25 2017 15 9 5.5 3.5 24 2018 15 11 7 4 26 2019 15 13 8.5 4.5 28 2020 15 15 10.5 4.5 30 2021 15 18 13.5 4.5 33 2022 15 21 16 5 36 Source: EISA 2007
    • 84. Industrial Markets Outlook: The Search for the New Normal 5th Annual ISA Marketing & Sales Summit D. Mark Douglass, Ph.D. Vice President, Sr. Equity Analyst, Longbow Research September 1, 2010 84