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Associated Press
ITT Taps into Growing Water Market
By BETH DEMAIN REIGBER, Dow Jones Newswires
NEW YORK (Dow Jones/AP) - Water, water everywhere; but is it good enough to drink or to keep a factory running?
Companies such as ITT Industries Inc. and General Electric Co. help ensure that it is, and the companies hope to capitalize on the growing global market of water treatment.
It's a field where tightening environmental regulations and the scarcity of water will spur demand over the long haul, analysts say.
"People do invest in our industry because they see the water industry as a steady, predictable, safe investment," said Dawn Kristoff, president of the Water and Wastewater Equipment Manufacturers Association.
"Water's the one thing there's no substitute for, and we all need it to live," she said. "It's not going away."
Beefing up water infrastructure in the United States alone could require hundreds of billions of additional dollars, the Environmental Protection Agency estimates.
ITT, of White Plains, N.Y., makes products ranging from water pumps to nightvision goggles, but U.S. Trust analyst Brian Madonick sees the water segment as the manufacturer's "crown jewel."
"It's my preferred way to play the water infrastructure buildup globally," he said. He likes ITT's strategy of offering a complete range of water and wastewater systems.
"ITT really has, through acquisition, acquired the pieces of the puzzle you'd really want to have," Madonick said.
Like bigger conglomerate GE, which also recently assembled a water-treatment arm, ITT may have an edge in the highly fragmented water industry thanks to its size.
ITT is expanding globally in the sector. Its latest steps were the acquisitions of Hengtong of China and German Wedeco AG Water Technology of Germany.
The Wedeco deal gives ITT a leader in the fast-growing water disinfection market, according to Tom Pokorsky, president of ITT's Sanitaire water-treatment subsidiary. The business should account for roughly 15 percent of the fluid technology segment's 2004 revenue, which ITT has projected between $2.45 billion and $2.5 billion.
ITT set its sights on expanding in water treatment about five years ago when it bought Wisconsin-based Sanitaire, Pokorsky said. ITT already was already a big maker of pumps.
Customers wanted not just some equipment, but a complete water treatment system from their supplier, he said. The demand sparked ITT's shopping spree, and ITT has entered new areas such as treatment of drinking water. Now, ITT is working on digesting acquisitions and making them more profitable.
Schwab Soundview Capital Markets analyst Debra Coy said that along with expected growth, ITT's water operations can lend balance and be a source of steady growth. ITT's defense arm has been strong - helping offset a slumping electronics business last year - but defense is cyclical and growth will slow down, she said.
GE sees opportunities for $3 billion in water industry acquisitions, though that is a relatively small part of the overall company.
GE's focus is on water treatment for industrial use, where it's crucial to have water clean and pure enough for various manufacturing processes, said GE spokesman James Tierney. A lack of clean water can hamper productivity and damage assets - for example, if pipes become foul and need to be replaced.
Water-treatment companies also can help businesses meet environmental regulations by providing equipment and services to conserve water through reuse or ensure that water that's disposed of is clean, Tierney said.
Tierney and others also point to an outsourcing trend in industrial water treatment, which has more companies paying outside, specialized operators to manage their water.
Meanwhile, smaller, niche companies may have a hard time thriving, observers said, paving the way for consolidation in the industry.
In the case of Wedeco, being a part of ITT gives it access to a major distribution channel, Wedeco spokesman Ralf Koenig said.
"A small company can stay successful regionally, but will never become a very big global market leader," Koenig said.
