Business spending spurs industrial earnings beats
Strong business spending spurred another crop of earnings beats at large multinational manufacturers, many of which raised 2011 earnings forecasts, but new evidence of the financial toll from Japan's earthquake tempered optimism.
General Electric (GE-N) led Thursday's earnings parade with an 80 percent rise in first-quarter profit, blowing past Wall Street forecasts. It also raised its dividend for the third time since July.
Other companies, though smaller than GE, also gained from rebounding capital spending in developed and emerging economies. Those that fit the beat-and-raise pattern included Danaher Corp. (DHR-N), Dover Corp. (DOV-N) and Honeywell International (HON-N), which reported late Wednesday.
"This week, we've seen very strong results out of industrial companies, reflecting both a return to manufacturing and also very strong capital investments," said Morningstar analyst Daniel Holland.
Thomas & Betts (TNB-N) and Ingersoll-Rand (IR-N) kept their full-year forecasts intact, while TE Connectivity (TEL-N) cut its outlook amid disruptions from last month's earthquake in Japan.
Infrastructure in countries like India and China has benefited companies that sell capital equipment, such as farming or construction machinery or factory systems used to produce energy and chemicals. They have also gained from increased investment by the energy sector amid $110 US per-barrel oil prices.
Although high raw material prices can hurt profits, they can also be a boon as food and energy producers spend more on equipment and services. And since many U.S.-based manufacturers generate most of their sales outside their home markets, a weaker dollar has also supported results.
"The industrial economy globally is pretty robust right now," said Dave Anderson, finance chief of Honeywell, which posted almost 40-percent sales gains in China and about 50 percent in India in the quarter.
"We saw very good growth in infrastructure and urbanization," Anderson said in an interview.
Honeywell posted a higher-than-expected quarterly profit late Wednesday and raised its full-year sales and earnings forecast, helped in part by demand from the energy industry.
Expectations were high coming into the quarter, with investors saying companies would have to beat by wide margins to move their stocks up.
Danaher, a maker of test and measurement equipment and medical technology, reported a higher-than-expected quarterly profit Thursday and raised its full-year forecast, citing growth in Brazil and China.
Profit also beat at Hubbell (HUB.B-N), which makes electrical products used in construction, and the company said it expected its core housing and nonresidential construction markets to return to growth next year.
Dover, whose businesses range from food packaging equipment to garbage trucks, raised its forecast, citing a strong energy market.
Construction equipment maker Terex (TEX-N) rose after it surprised with a profit where a loss had been expected, and said orders were accelerating.
Ingersoll-Rand's profit from continuing operations beat Wall Street estimates on strength at its climate and industrial businesses, lifting its stock. But earnings slumped at a unit that makes residential locks and air conditioners, amid higher costs and still-weak U.S. housing.
Ingersoll CEO Mike Lamach said he saw "early signs of life" from air conditioning users who are upgrading homes and commercial buildings, but new construction remained muted. A recovery in non-residential construction, a key market for many large-cap industrial companies, remains distant.
"I don't see it going into full swing before 2012," Lamach said in an interview.
The company also said it would sell its Hussmann unit that makes refrigerated display cases used in grocery stores. It is in talks with a number of potential buyers of the unit, whose 2010 sales totaled $800 million.
Lamach said he saw strong buyer interest for Hussmann.
TE Connectivity, the former Tyco Electronics, reported a profit slightly below estimates and warned last month's earthquake in Japan would hurt the current quarter because of disruptions to its customers, including automakers. Japan accounts for about $1 billion in annual sales at TE.
Farm equipment maker CNH Global N.V. (CNH-N) maintained its revenue outlook for the year, but said the Japan disaster would hit production of its construction equipment over the next two quarters.