HURC - Hurco's Results Reflect An Underlying Industrial Market That Is Still Under Real Pressure

2024-06-07 17:13:00 ET

Summary

• Hurco's fiscal second quarter reflected underappreciated pressures in the industrial economy, as industrial capex spending weakens amid short-cycle uncertainty.
• The company's gross margin fell more than expected, as the company cut prices to move inventory and saw a less favorable sales mix.
• Macro indicators like PMIs and machine tool orders as well as weaker results from other players in industrial markets support the thesis that current underlying conditions are tough.
• I believe Hurco is going through a cyclical bottom and will see demand rebound as the short-cycle correction ends and drivers like manufacturing reshoring boost tool demand.
• Hurco is not suitable as a long-term buy-and-hold idea, but has some appeal as a play on that eventual recovery in cyclical industrial capex spending.

Depending on what metrics or indicators you follow, you wouldn’t necessarily think that there’s much to worry about in the economy, and particularly the industrial/manufacturing economy. The S&P 500 is at or near a high and industrial stocks as a group have been cruising along, with the Industrial Select Sector SPDR Fund ( XLI ) up 23% over the past year and the Vanguard Industrials Index Fund ( VIS ) up a similar 24%, despite ongoing weakness in indicators like manufacturing PMI both here and in Europe....

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