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Tags: Manufacturers | Growing | cautious

US Manufacturers Growing More Cautious on 2012

Wednesday, 19 October 2011 03:24 PM

Big U.S. manufacturers are growing warier about 2012, with blue-chip United Technologies Corp. already looking for ways to cut costs further ahead of what it expects to be a tougher year.

That news came as United Tech and smaller peer Textron Inc reported third-quarter results that topped Wall Street's expectations Wednesday and said their momentum should carry their profit growth through the end of 2011.

"I think 2012 is going to be a tougher year than 2011. The order rates in the developed world have slowed down, the economies are not growing in the U.S. and Europe," said United Tech Chief Financial Officer Greg Hayes, in an interview.

"Growth is going to be tougher next year. We're still going to grow earnings, though. The base business we're still targeting at 10 percent earnings growth for next year."

The world's largest maker of elevators and air conditioners is stepping up its restructuring spending, allocating more than $300 million to ways to cut costs this year, up from its previous plan to spend $200 million on restructuring, he said.

The company may cut jobs at its Pratt & Whitney jet engine and Sikorsky helicopter units, as they feel the pinch of lower military spending on aircraft.

That move — to cut costs in the face of uncertainty — may become a common one among big U.S. companies, investors and observers have said.

"No one knows anything. You don't know what the policy environment is going to be, you don't know what the international environment is going to be and you don't know what the tax environment is going to be. But you do know what your costs are," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio. "So you control what you have in front of your nose."

Major U.S. industrials including United Tech, as well as General Electric Co and Caterpillar Inc cut tens of thousands of jobs in the wake of the 2007-2009 recession. Since then they have counted on low costs and a large presence in fast-growing markets including China, Brazil and Russia to offset tepid demand in the United States and Europe.

With Europe's debt crisis raising risks of another shock to the world's financial system, investors have grown nervous, sending the Standard & Poor's 500 index down 2.6 percent so far this year. Manufacturers, as measured by the S&P Capital Goods index are down more, about 8 percent.

Investors will get a deeper look into the sector's health over the next week, as more big manufacturers including GE, Caterpillar and 3M Co. report results.


United Tech's third-quarter profit rose 10.5 percent, topping analysts' expectations. It raised its full-year forecast for the fourth time since its initial December forecast. It expects to earn $5.47 per share in 2011, representing a 15 percent rise over 2010.

The Hartford, Connecticut-based company is counting on strong orders from China, which were up 30 percent in the quarter, and the continuing revenues it makes from maintaining the equipment it sells, to help it hit that target.

It also plans to close its biggest-ever acquisition, a $16.5 billion deal for Goodrich Corp, next year.

Textron, the world's largest maker of corporate jets, also beat Wall Street's forecasts for the just-ended quarter.

It reported net income of $142 million, or 47 cents per share, reversing a year-earlier loss. Factoring out one-time items, profit came to 45 cents per share, well ahead of the 31 cents per share analysts had expected, according to Thomson Reuters I/B/E/S.

The Providence, Rhode Island-based company expects full-year earnings to come to $1.05 to $1.15 per share. Factoring out costs related to a recent debt buyback, that forecast is unchanged from its view three months earlier, Chief Executive Scott Donnelly told investors on a conference call.

Donnelly, a former GE executive, has made cutting costs a priority since taking the helm in 2009.

He declined to forecast 2012 performance, but noted that demand for Cessna light jets would be affected by the uncertain economic outlook, though he said the unit was continuing to book orders, particularly in Latin America and Asia.

Amphenol Corp, a maker of electronic and fiber optics connectors, cut its full-year sales and profit targets citing uncertainty around fiscal and budget issues in developed economies.

"We have begun to see increased levels of caution from many of our customers, translating into lower demand in most markets," the Wallingford, Connecticut-based company said.

Another reason for caution came from a widely-tracked annual forecast of U.S. construction activity. New U.S. construction starts are forecast to rise only slightly in 2012, to $412 billion from 2011's $410 billion, according to McGraw-Hill Construction.

McGraw-Hill said 9.1 percent unemployment and tight budgets at the state and local level remain impediments to new building activity, which has remained depressed for three years.

United Tech shares were up 12 cents at $74.24 and Textron was up 35 cents at $19.01 on the New York Stock Exchange.

© 2022 Thomson/Reuters. All rights reserved.

Big U.S. manufacturers are growing warier about 2012, with blue-chip United Technologies Corp. already looking for ways to cut costs further ahead of what it expects to be a tougher year. That news came as United Tech and smaller peer Textron Increported third-quarter...
Wednesday, 19 October 2011 03:24 PM
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