ZACKS·2025-12-29 18:55Core Industry Outlook - The Zacks Industrial Services industry's near-term outlook is negatively impacted by a weak manufacturing sector, with customers concerned about tariffs and increased input costs eroding margins [1] - Manufacturing activity, which contributes approximately 70% to the industry's revenues, has been in contraction for several months, with the latest reading at 48.2% indicating ongoing struggles [4] Growth Catalysts - Despite current challenges, the rise in e-commerce activities is expected to be a significant growth driver for the industry, with companies investing in automation and digitization to meet customer demand [2][6] - Companies like Kion Group, Andritz, SiteOne, and MSC Industrial are positioned for growth by lowering costs and increasing productivity [2] Industry Description - The Zacks Industrial Services industry includes companies providing industrial equipment and MRO services, serving a diverse range of customers from commercial to healthcare [3] - Products offered include power tools, hand tools, lubricants, and personal protective equipment, which are essential for maintenance but not directly tied to core customer products [3] Current Challenges - The industry faces significant inflation, with rising labor, freight, and fuel costs, alongside labor shortages impacting operational efficiency [5] - The imposition of tariffs is expected to further increase costs for industry players, prompting them to focus on pricing actions and cost-cutting measures [5] Stock Market Performance - The Industrial Services industry has underperformed compared to its sector and the S&P 500, with a growth of only 0.1% over the past year, while the sector grew by 7.1% and the S&P 500 by 19.3% [9] - The industry's current valuation, based on the trailing 12-month EV/EBITDA ratio, stands at 35.72X, significantly higher than the S&P 500's 18.83X and the Industrial Products sector's 25.54X [12] Company Highlights - Andritz: Order intake increased by 14.5% year-over-year in Q3 2025, with revenues projected between €8 billion and €8.3 billion ($9.42-$9.8 billion) [16] - Kion Group: Experienced rising customer demand and announced a cost-saving efficiency program expected to save €140–€160 million annually from 2026 [21] - SiteOne: The largest national distributor of landscape supplies, focusing on acquisitions and operational excellence, with a projected 24% growth in earnings for 2025 [24][27] - MSC Industrial: Returned to sales growth in Q4 2025, with a 5% increase in earnings per share, and aims for growth above the industry index [28][29]