Diversified U.S. manufacturers Honeywell International Inc. and Ingersoll-Rand PLC beat Wall Street's profit expectations and raised their forecasts for the rest of the year as strong demand from Asia helped to offset a tepid recovery at home.
Emerging-market growth, particularly in China and India, will remain a major driver for the sector as it heads into 2011, according to Honeywell, the world's largest maker of cockpit electronics, which said it expects sales to grow by 5 percent or more next year.
"It's pretty muted growth in the developed economies of the U.S. and Europe and continued pretty robust growth in the emerging markets, notably Eastern Europe and China, India, Brazil and Latin America," Chief Financial Officer Dave Anderson said in an interview. "We're looking at pretty low numbers for the U.S. and Europe."
Honeywell and Ingersoll reported strong demand from Asia for equipment that is used to heat, cool and secure large buildings. That helped to offset a continued slump in nonresidential construction in their home markets.
"For the balance of 2010 we expect markets in Europe and the Middle East to decline slightly and growth in Asia to continue to be led by strong growth in China," Ingersoll CFO Steve Shawley said on a conference call.
Investors are looking to industrials to boost their presence in the region, particularly by selling more into the fast-growing Chinese construction sector. Honeywell generates about 40 percent of its revenue from equipment used in large buildings and 32 percent from the aviation sector.
China surprised investors on Tuesday by raising interest rates for the first time in nearly three years, in a bid to slow the rise in asset prices.
"If there's one thing that's working for anybody today, it's growth in the Asia-Pacific region," said Barbara Marcin, portfolio manager of the Gabelli Blue Chip Value Fund, which holds Honeywell shares.
"Everyone would like to see Honeywell a little more exposed there."
Honeywell said sales to the Asia-Pacific region were up 21 percent in the quarter, more than twice the company's overall growth rate.
Morris Township, New Jersey-based Honeywell reported an 18 percent drop in net income, which it attributed to its aggressive approach to pension accounting.
Earnings per share came in at 64 cents, ahead of the 62 cents analysts had estimated, according to Thomson Reuters I/B/E/S.
Honeywell forecast full-year earnings of $2.52 per share, above its most recent outlook of $2.40 to $2.50. It was the third time this year that the company had raised this target.
It said that pension costs will continue to weigh on earnings next year, representing a drag of $350 million to $400 million on net profit.
Honeywell shares were down 1 cent to $46.66 on the New York Stock Exchange.
Ingersoll's net income rose 7 percent, with earnings of 80 cents per share from continuing operations, 1 cent ahead of the analysts' average estimate.
The company said it now expected full-year profit of $2.30 to $2.40 per share, excluding 12 cents in charges for healthcare tax expenses.
That is higher than its most recent forecast of $2.18 to $2.38 per share.
Ingersoll shares rose 8 cents to $39.04.
Smaller industrial Dover Corp., which makes supermarket equipment, industrial pumps and valves, said profit more than doubled.
Dover earned 98 cents a share from continuing operations, excluding a tax benefit and other items. Analysts on average expected 90 cents.
However, Dover did not beat forecasts by as wide a margin as in the past several quarters and Dover shares fell 4 percent to $52.61.
Investors had been sensitive to any sign of weakness in industrial earnings reports this quarter. On Wednesday they bid shares of Caterpillar Inc. down 1 percent, even after the world's largest maker of earth-moving equipment easily topped profit forecasts, amid concerns that its recent pace of profit margin improvement was not sustainable.
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