Manufacturing Tools Industry Faces Headwinds Amid Economic Slowdown
A slowdown in new orders, ongoing supply-chain issues, and general softness in the manufacturing sector have negatively influenced the outlook for the Zacks Manufacturing-Tools & Related Products industry. Additionally, a shortage of skilled labor in the United States remains a significant concern for industry players.
However, investments in product development and strategic cost-control measures are expected to support growth among industry participants. Key players like Lincoln Electric Holdings, Inc. LECO, Core & Main, Inc. CNM, Stanley Black & Decker, Inc. SWK, and Enerpac Tool Group Corp. EPAC are well-positioned to navigate these challenging market conditions.
Overview of the Industry
The Zacks Manufacturing-Tools & Related Products industry includes companies that design and distribute a range of tools, such as hand tools, hydraulic tools, and advanced heavy-lifting solutions. Among the products offered, suppliers also create arc-welding tools, fume-extraction systems, plasma cutters, and electronic security solutions, catering to diverse sectors including industrial, commercial, oil and gas, mining, and automotive. Some players operate on an international scale, distributing products to markets in North and South America, Europe, Japan, Asia, and the Middle East.
Key Trends Affecting the Manufacturing Tools Industry
Weakness in the Manufacturing Sector: The manufacturing sector has faced persistent challenges, reducing demand within the industry. According to a recent report from the Institute for Supply Management (ISM), the Manufacturing Purchasing Manager’s Index fell to 49% in March, a decline from 50.3% in February. A reading below 50% signals contraction. Furthermore, the New Orders Index dipped into contraction territory, falling to 45.2% in March after a reading of 48.6% the previous month.
Rising Costs Impacting Margins: Increased input costs and other expenses have squeezed profitability across the industry. Supply-chain disruptions are adding to raw material and logistics costs. The ISM’s Supplier Deliveries Index indicated a slowdown in deliveries for the fourth consecutive month in March. Together, rising expenses and a tight labor market threaten profit margins, but companies are implementing cost management strategies to counter these challenges. These strategies include streamlining operations, optimizing supply chains, and effective pricing policies.
Focus on Product Development and Innovation: Continuous innovation, product upgrades, and the development of new offerings are critical for competitiveness within the sector. Although these efforts are essential for long-term growth, heavy investments in research and development can lead to highly leveraged balance sheets.
Zacks Industry Rank Suggests Weak Prospects
The Zacks Manufacturing-Tools & Related Products industry, part of the broader Zacks Industrial Products sector, currently holds a Zacks Industry Rank of #162, which positions it within the lowest 34% of 247 Zacks industries.
This industry ranking reflects a challenging outlook, as indicated by the group’s Zacks Industry Rank, derived from the average Zacks Rank of member stocks. Historically, the top 50% of Zacks-ranked industries outperform the bottom 50% by over two to one. Currently, aggregate earnings estimates for this industry have declined, with expectations for 2025 revised down by 11.1% over the past year.
While near-term prospects appear bleak, there are still stock options worth considering for investor portfolios. Before diving into those, it’s prudent to examine the industry’s shareholder returns and current valuation.
Industry Underperforming Compared to Sector & S&P 500
The Zacks Manufacturing-Tools & Related Products industry has experienced underperformance relative to both its sector and the S&P 500 composite index over the past year.
During this period, the industry recorded a decline of 20.5%, compared to a 12.1% decrease in the sector, while the S&P 500 Index rose by 6.9%.
One-Year Price Performance
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Current Valuation of the Industry
Currently, based on the forward price-to-earnings ratio (F12M), a common valuation metric for manufacturing tool stocks, the industry is trading at 15.81X. This is lower than the S&P 500’s 20.05X and the sector’s 16.83X. Over the last five years, the industry has seen valuations range from a high of 22.71X to a low of 11.65X, with a median of 18.74X, as illustrated below:
Price-to-Earnings Ratio vs. S&P 500
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Price-to-Earnings Ratio vs. Sector
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Stocks to Watch in the Manufacturing Tool Sector
Stanley Black & Decker: Based in New Britain, CT, Stanley Black & Decker produces power and hand tools, accessories, and engineered fastening systems. Continuous momentum in its Tools & Outdoor segment, bolstered by DEWALT’s performance, is likely to drive SWK’s growth. Ongoing cost-control and supply-chain optimization efforts are expected to enhance margins for this Zacks Rank #3 (Hold) company. Historically, Stanley Black has consistently exceeded earnings expectations, with an average surprise of 16.2% over the last four quarters.
Price and Consensus: SWK
Lincoln Electric:…
Lincoln Electric and Other Key Players in the Manufacturing Sector
Located in Cleveland, OH, Lincoln Electric is a comprehensive manufacturer and reseller of welding and cutting products. The company is currently benefiting from effective cost management and reduction strategies. New product launches in the automation solutions market, along with investments in advanced technologies, are anticipated to enhance Lincoln Electric’s growth prospects.
This company, ranked #3 by Zacks, has consistently reported better-than-expected results over the last four quarters, achieving an average earnings surprise of 9.6%. Additionally, Lincoln Electric’s earnings estimates have seen a 2% upward revision over the past 60 days for 2025.
Price and Consensus: LECO
Core & Main: Based in Saint Louis, MO, Core & Main (CNM) offers products and services related to wastewater, water, storm drainage, and fire protection for private water companies, municipalities, and professional contractors. Their products are essential for maintaining, repairing, replacing, and constructing infrastructure connected to these systems. The company is currently experiencing increased demand for pipes, valves, and fittings, as well as storm drainage products. Moreover, the acquisition of certain assets and liabilities from ARGCO Northeast LLC in November 2024 is expected to positively impact Core & Main’s operations.
The Zacks Consensus Estimate for Core & Main’s earnings for fiscal 2026 (ending January 2026) has risen by 1.3% in the past 60 days, and its shares have climbed 1.4% in the last month.
Price and Consensus: CNM
Enerpac Tool: Headquartered in Menomonee Falls, WI, Enerpac Tool Group (EPAC) specializes in designing, manufacturing, and distributing a variety of industrial tools, including high-pressure hydraulic tools and controlled force products. The company also offers a broad range of services. Enerpac is currently benefiting from strong momentum within the Industrial Tools & Services segment, along with growth in its Cortland Biomedical business.
Ranking at #3 on Zacks, Enerpac’s stock has appreciated by 12.3% over the past year. The Zacks Consensus Estimate for its earnings for fiscal 2025 (ending August 2025) has remained stable over the last 60 days.
Price and Consensus: EPAC
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Stanley Black & Decker, Inc. (SWK): Free Stock Analysis Report
Lincoln Electric Holdings, Inc. (LECO): Free Stock Analysis Report
Enerpac Tool Group Corp. (EPAC): Free Stock Analysis Report
Core & Main, Inc. (CNM): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
