Manufacturers see improving economy ahead

By @ibtimes on

A pair of top U.S. manufacturers topped Wall Street's profit expectations, as a recovering global economy drives demand for products ranging from air conditioners to truck transmissions.

The companies -- United Technologies Corp and Eaton Corp -- also raised their full-year earnings forecasts, and their shares rose in premarket trading.

A third, Textron Inc , posted a profit that missed analysts' expectations on weakness at its Cessna corporate jet unit, but held its full-year forecast steady. Its shares fell 1.1 percent.

We think that the rest of the year is going to be very positive, said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York, which holds shares in both United Tech and Textron.

The first-quarter results show that strong demand from China, India and other emerging markets had offset the disruptions to supplies of some electronic components in the wake of Japan's March 11 tsunami and ensuing nuclear crisis, Pursche said.

United Tech posted sales growth across its six divisions, whose products range from Otis elevators to Black Hawk military helicopters, and said it saw strong demand around the world.

It seemed inevitable that we needed to raise the guidance because the risks that we saw earlier in the year just don't seem to be materializing, United Tech Chief Financial Officer Greg Hayes said in an interview.

The company raised its full-year profit forecast by 5 cents to a range of $5.25 to $5.40 per share, representing growth of 11 percent to 14 percent and marking the second increase since United Tech first issued its outlook in December. United Tech expects full-year sales at the top end of its prior forecast range of $56 billion to $57 billion.

Strong demand for Carrier air conditioners boosted results.

I don't think anybody was looking for Carrier to report $310 million of profit, said analyst Brian Langenberg of Langenberg & Co in Chicago. Makers of heating and cooling equipment are able to pass on higher raw materials prices, he added.

Ingersoll-Rand Plc , maker of cooling systems for homes, businesses and transport, reports results on Thursday.

Expectations for industrial earnings are high this quarter, Langenberg said, so shares will not necessarily rise when a company beats and raises its forecast.

They have to beat strong, he said. They have to surprise.

IMPROVING ECONOMY

Business investment in capital equipment has been one of the bright spots in a nearly 2-year-old economic recovery. A reading of the U.S. manufacturing sector by the Institute of Supply Management has indicated expansion for 20 consecutive months.

But comparisons with a year ago are becoming harder as growth rates moderate. Analysts have noted industrial companies will put more emphasis on capital allocation strategies, including mergers and acquisitions, to drive the next stage of growth.

Eaton also sounded upbeat. Earnings at the maker of truck transmissions, hydraulic systems and electrical products were 84 cents per share, 4 cents more than analysts had expected.

Shares of United Tech were up 3.1 percent at $84.88 in trading before the market opened. Eaton gained 1.5 percent to $53.40.

The sector's weak spot was Textron, whose first-quarter earnings of 10 cents per share missed Wall Street's 17-cent forecast. The results reflect still-lackluster demand for its Cessna corporate jets.

But Textron held its full-year profit forecast steady at $1 to $1.15 per share, which would represent a more than tripling of earnings after an aggressive restructuring last year.

Our underlying operational performance at Cessna was disappointing, Chief Executive Scott Donnelly told investors on a conference call. He noted that while aircraft sale were weak, orders rose, leaving the company confident that overall jet deliveries would rise slightly this year.

Shares of Textron were down 1.1 percent at $25.50.

The three companies kick off a wave of earnings reports from big U.S. manufacturers. General Electric Co , Honeywell International Inc , and Danaher Corp are among the industrials due to report on Thursday.

The industrial sector has generally outperformed the broader market over the past year, with the Standard & Poor's capital goods industry <.GSPIC> index up 13 percent, while the full S&P 500 <.SPX> has gained 9.5 percent.

(Reporting by Scott Malone and Nick Zieminski; Editing by Lisa Von Ahn)

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