Consumer markets hurt some industrial earnings
Disappointed investors dumped shares of several large U.S. industrial and transport companies after they warned of weak consumer markets, especially in the United States.
3M Co's
3M's report was one of several early alarm bells about demand in the second half of 2011, amid persistently high unemployment, a U.S. housing market at multi-year lows, and a political impasse over the debt ceiling.
If U.S. and global economies slow down, cyclical manufacturers may be one of the first sectors where that slowdown will be visible. Near-term profit expectations may come down, said industrials analyst Jeff Windau of Edward Jones.
Even with some warning signs and potential economic slowing, we still have high expectations, Windau said. You see some signs of weakness. The consumer is the most obvious.
3M said Japan's March earthquake had reduced sales and profit margins in its display and graphics division, which makes specialty films for computers and televisions. Lower consumer spending was also a factor.
The LCD TV business is ... going through one of those down cycles that reflect inventory corrections and, ultimately, a less robust consumer end market, 3M Chief Executive George Buckley told analysts.
Expectations were fairly high for 3M, said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland. It met estimates because of a weaker dollar and a boost from acquisitions.
Display and graphics was the weak spot and that's a consumer item, Klein said. That just speaks to the pullback by consumers. It's not unexpected, but it's a concern.
CAUTIOUS CONSUMERS
A wider index of U.S. capital goods companies <.GSPI> was down 1.8 percent. The sour mood affected even companies whose earnings came in ahead of expectations, like Pentair
, a maker of filtration and electrical systems whose third-quarter profit outlook disappointed.
Warning signs were not limited to industrial names.
Texas Instruments
ARM Holdings
And Ford Motor
Shares of United Parcel Service were down 4.7 percent at $70.54 after a modest earnings beat. The world's largest package delivery company, whose iconic brown trucks carry some 6 percent of the U.S. economy, said it was cautious about its upcoming peak shipping season.
We have to get unemployment rates down in this country to get consumer confidence up, CEO Scott Davis said.
Steel and aluminum companies have reported stronger demand from some industrial sectors, but said profits are still constrained by weakness in residential and non-residential construction in Europe and North America.
AK Steel Holding Corp
Though earnings from companies affected by consumer spending hinted at a slowdown, other signs suggested shoppers remain resilient. U.S. stocks pared losses as a better-than-expected reading on consumer confidence boosted investor optimism.
PROFITS DISAPPOINT
Several other manufacturing names missed profit forecasts.
Illinois Tool Works Inc
Truck maker Paccar
cited economic uncertainty when it lowered its estimate of this year's heavy-duty truck production in North America.
Carlisle Cos Inc's
Lennox International
A bright spot in U.S. industrial earnings was Cummins Inc
(Additional reporting by Steve James, A. Ananthalakshmi, and Lynn Adler in New York, editing by Lisa Von Ahn and Matthew Lewis)
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