Caterpillar Inc , UPS and other U.S. multinationals reported strong quarterly results on Thursday, suggesting the global economy may be on a stronger footing than previously thought.
Demand in emerging markets boosted profit at big U.S. industrial companies like Caterpillar, which gets almost two-thirds of its revenue outside its home market, while highlighting the extent to which businesses rather than consumer spending are leading the recovery. 3M Co. and Danaher Corp. , were on a long list of companies raising 2010 earnings forecasts.
That helped reverse sentiment among investors, who recently have fretted about a double-dip recession and tepid sales growth. Shares of most industrial companies jumped on Thursday, as did the market. The Standard & Poor's 500 index of large companies rose 2.25 percent.
Overall, this is producing a fairly heartening picture, said Ali Naqvi, founder of Naqvi Van Ness Asset Management in New York. It's dangerous to take a negative view from this round of earnings so far.
Global industrial giants have invested heavily to expand in India, China and other developing economies that are building infrastructure. Their results highlight a disconnect between slow-growing developed economies and much faster recovery in emerging markets, whose recessions have been typically shallower and shorter.
Thursday brought reminders that the recession has not fully released its grip, however.
U.S. jobless claims rose more than expected; an index of leading indicators hinted at slow growth ahead; the supply of unsold U.S. homes rose, and Federal Reserve Chairman Ben Bernanke told Congress the U.S. economy still needed a reasonable degree of stimulus.
Caterpillar, the No. 1 maker of construction and mining equipment, noted China's infrastructure spending and machinery sales to Latin America, cited price increases and said orders were outpacing shipments to dealers.
Its profit beat Wall Street's expectations by a wide margin, and its earnings forecast leapfrogged analyst estimates.
Caterpillar said most economies are in recovery but a double-dip recession in Europe and North America remains possible. Its shares rose 1.7 percent. The S&P Cap Goods index <.GSPIC> was up 2.6 percent.
One challenge for the Peoria, Illinois-based company is the rising price of commodities, including iron ore and copper, which can push up its costs, its chief financial officer told Reuters.
Industrial companies, which generally do not sell directly to consumers, are benefiting from demand among businesses and governments, a point noted by shipper UPS, whose own profit almost doubled.
Clearly, this is a business-led recovery, UPS CEO Scott Davis said. You'll see industrial production grow faster than GDP. That's driven by the manufacturing side.
Like others, UPS raised profit forecasts, which was a good sign, said Peter Jankovskis, co-chief investment officer at OakBrook Investments.
The amount of shipping volume is pretty directly correlated with the strength of the economy, Jankovskis said.
The results followed improved forecasts from multinational manufacturers United Technologies , Textron and Eaton , which reported on Wednesday.
On Friday, investors will receive earnings reports from manufacturers Honeywell International Inc HON.N>, Ingersoll-Rand Plc and Dover Corp .
3M, like Caterpillar, said Asia-Pacific sales jumped more than 40 percent, far ahead of the pace in North America or Europe. For a graphic, click http://link.reuters.com/cef98m
But 3M, whose shares rose 3 percent, expressed concern the world economy is not entirely out of the woods, because of sluggish growth in the United States and Europe, high unemployment and persistent debt concerns.
There will be a period of slower growth in end markets later this year, 3M CEO George Buckley said. This isn't a double-dip per se. It's just a soft spot and very normal as economic growth takes a breather for a while.
Danaher Corp , whose products range from dental tools to water testing equipment, also raised its profit forecast but said sales growth will moderate in the final half of 2010.
That note of caution was echoed by electrical products maker Cooper Industries Plc , which beat estimates but said recovery remained uncertain. Shares of Danaher were down 0.7 percent, while Cooper fell 5 percent.
Also beating Wall Street estimates were Thomas & Betts , Wesco and Hubbell .
(Reporting by Nick Zieminski, additional reporting by Scott Malone in Boston and Rodrigo Campos; Editing by Derek Caney, Tim Dobbyn, Robert MacMillan and Steve Orlofsky)