Tags: Industrial | Firms | Economic | Recovery

Industrial Firms Leery of Choppy Economic Recovery

Friday, 29 January 2010 12:31 PM

Profits at U.S. industrial companies continued this quarter's trend of beating Wall Street expectations, but many kept their 2010 forecasts unchanged and expressed caution over a choppy economic recovery.

"We're still sailing in some choppy economic waters," 3M Chief Executive George Buckley said. 3M , the biggest of the companies reporting Thursday, beat estimates for the third quarter in a row and raised its full-year outlook, citing strong demand for all its products, including healthcare products and coatings for electronic screens.

The company, which makes everything from adhesives and abrasives to stethoscopes and insect repellent, said fourth-quarter net income rose to $935 million, or $1.30 a share, from $676 million, or 97 cents a share, a year earlier.

Revenue increased 11 percent to $6.1 billion.

"There's growing concern that the U.S. economy is maybe stumbling and since stock prices have factored in hopes of a more robust rebound, we're seeing weakness in a lot of industrial names," said Adam Fleck, an analyst at Morningstar.

Wayne Titche of AMBS Investments in Grand Rapids, Michigan, a co-manager of the AHA Diversified Equity Fund, said it is unclear whether an economic recovery is losing momentum or whether some of the recovery was illusory in the first place.

"The long-term issues that face the economy haven't gone away," Titche said.

"We've had doubts about how strong the recovery will be, and we've stuck with market leaders and companies that don't have a lot of debt."

Titche's fund owns 3M, Parker Hannifin , General Electric and FedEx .

Tyco International reported a 10 percent increase in quarterly net income with improved margins in three of its five units, including its ADT security services division, which is set to expand after the $1.9 billion purchase of a rival.

But while the industrial conglomerate kept its 2010 forecast unchanged, it mentioned continued weakness in its flow control segment, which makes valves, pipes and thermal controls.

Tyco's projected earnings range was below consensus estimates, but it said the forecast did not factor in a significant improvement in economic growth.

"The wheels would have to fall off the economy at this point, I think, for us to be down to the low end of the guidance range," CEO Ed Breen told analysts on Tyco's conference call.

The recovery is going to be choppy and growth muted, said Keith Springer, President of Capital Financial Advisory Services in Sacramento.

But inventories continue to decline, which means industrial companies' customers will have to replenish when they see proof of growth.

"What I like that I'm seeing, (manufacturers) cut back on costs quicker than expected," Springer said.

"These big behemoth companies laid off quickly, cut costs quickly, and they have adapted output to meet demand much faster, which will get us through the recession quickly."

Many companies with better profits cited cost cuts.

Polaris Industries , a maker of all-terrain vehicles, snowmobiles and motorcycles, beat Wall Street expectations, as deep cost cuts outpaced declines in sales. It also said it was gaining share in key markets.

Danaher , a manufacturer of dental and medical technology, specialty tools and water testing equipment, also cited its restructuring as it beat estimates.

Margins improved in its professional instruments segment, its biggest business.

It also said its orders were continuing to improve.

Meanwhile, specialty truckmaker Oshkosh reported stronger-than-expected quarterly earnings, driven by a big jump in vehicle sales to the military, but sales of equipment used by builders fell 60 percent, reflecting continued weakness in the real estate markets.

Textron's net loss narrowed, but it set a much lower-than-expected 2010 profit target, signaling that weak demand for corporate aircraft would continue to haunt the world's largest maker of corporate jets.

The world's largest maker of recreational boats, Brunswick reported a wider-than-expected quarterly loss as the oversupply of recreational boats and discounting in the marine market continued to weigh on results. That stock slumped almost 9 percent Thursday.

Thursday, 3M fell about 2 percent toward $80, Tyco lost 1 percent to about $36, Danaher lost 2 percent to below $73, all on the New York Stock Exchange.

Sentiment about the economy has been improving, even as hard data gives mixed signals on the recovery.

Orders for long-lasting U.S. manufactured goods rose in December for the first time in three months, the U.S. government reported on Thursday, but by less than economists had forecast. Such orders are a leading indicator of manufacturing activity.

A quarterly survey of manufacturing sector executives found 35 percent believe the economy grew last quarter, up 22 points from three months ago, according to PricewaterhouseCoopers.

A separate CFO Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, showed rising optimism.

CFOs expect earnings to jump 22 percent, double the expected increase a quarter ago. Most don't expect layoffs, but fewer than half say they will add staff.

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Profits at U.S. industrial companies continued this quarter's trend of beating Wall Street expectations, but many kept their 2010 forecasts unchanged and expressed caution over a choppy economic recovery. We're still sailing in some choppy economic waters, 3M Chief...
Friday, 29 January 2010 12:31 PM
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