Industrials' optimism is short-range

Few are willing to predict stronger demand for their products in 2010, limiting themselves to discussing stabilizing -- rather than improving -- sales trends.

This earnings season, many companies beat Wall Street earnings forecasts, helped by cost cuts, but often reported sales that fell short expectations, noted analyst Guaylon Arnic of Profit Investment Management, which owns a number of industrial names, including Danaher Corp.

"They're able to beat on the bottom line but demand is still significantly below 2008," Arnic said. "Management teams for the most part have said sales have stabilized, but nobody says (they're going up)."

Industrial conglomerate Danaher reported better-than-expected third-quarter profit and sales and said it expected to grow revenues sequentially in the quarter now under way. It called the economy "stabilizing yet still challenging.

Third-quarter net earnings fell 5.5 percent to $351 million, or $1.05 per share, from $372 million, or $1.11 per share, a year earlier. Before items, earnings were 89 cents per share, 3 cents better than expected, according to Thomson Reuters I/B/E/S.

'SURPRISINGLY PLEASANT'

3M Co. noted a sequential sales improvement and said demand declines appear to have bottomed in many industries.

"I confess that the rate of sequential growth is surprisingly pleasant," 3M CEO George Buckley said on a conference call.

The company, which makes products ranging from Scotch tape to optical films for liquid crystal display televisions, reported third-quarter net income of $957 million, or $1.35 a share, down from $991 million, or $1.41 a share last year.

Revenue fell 5.6 percent to $6.2 billion. Gains in sales of display and graphics products, and health-care revenues, helped offset declines in consumer and office products.

The company raised its 2009 earnings forecast.

"We all know the hardest time to forecast sales accurately is at turning points in demand," Buckley said. "I don't think forecasting will get much easier any time soon."

Buckley said any real recovery would stem from increased aggregate consumer demand. He said that so far, despite hundreds of billions of dollars of stimulus spending by governments worldwide, consumers remained cautious in most markets.

JPMorgan analyst Stephen Tusa noted 3M raised its 2009 forecast by more than its third-quarter beat, "suggesting trends are sustainable near term," but said short-interest in the stock remains stubbornly high as investors bet against the company.

Further insight into the economy came from the transport sector.

The No. 1 U.S. railroad, Union Pacific Corp said a year-long drop in freight volumes tied to the recession appears to have stabilized, although a quick economic recovery was unlikely. Volumes seem to have stabilized "at very low levels,"

CEO Jim Young said.

Trucking and logistics company Ryder System Inc said it expects soft demand for freight shipments to continue to weigh on its results, as the global economic slump weighs on demand for rental and leased vehicles. Ryder posted a 66 percent slump in net quarterly profit.

Both Ryder and Union Pacific shares fell.