US manufacturers rebounding, but still wary
Even as a wave of big US manufacturers reported results that topped Wall Street expectations, executives pointed out that profits still have not returned to pre-recession highs and took a cautious tone as they looked ahead.
January 27, 2011 / 10:10 IST
Even as a wave of big US manufacturers reported results that topped Wall Street expectations, executives pointed out that profits still have not returned to pre-recession highs and took a cautious tone as they looked ahead.
"There is some euphoria over the order rates that we've seen, but you should recall that we are still not anywhere near the levels that we saw in 2008," United Technologies Corp Chief Financial Greg Hayes told investors.United Tech was among a handful of US manufacturers, including Textron Inc, Rockwell Automation Inc and General Dynamics Corp, posting fourth-quarter results on Wednesday that beat analysts' expectations.The world's largest maker of elevators and air conditioners reported a 12% rise in profit, topping analysts' view by 2 cents, according to Thomson Reuters I/B/E/S.Its shares eased less than 1% to USD 81.12 on the New York Stock Exchange as the company held its full-year profit forecast steady. "The stocks ran pretty hard over the past year. I wouldn't call them richly valued but they are fairly valued," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio, which holds United Tech shares. "One of the things I've been attempting to tune my ear to is what the future holds. And I'm not hearing a lot."Shares of Boeing Co fell 4% to USD 69.40 after the jet maker -- which has been struggling with delays in its long-awaited Dreamliner aircraft -- forecast 2011 profit of USD $3.80 to USD 4 per share, well below Wall Street expectation.United Tech shares have run up 19% over the past year, helping leading the Dow Jones industrial average back to the 12,000 level it briefly hit on Wednesday, its highest since June 2008."I'm surprised at how quickly things recovered," Klein said. "We had a near-death experience and here we are, from a nominal standpoint, above it."Cost worries remain Textron, the world's largest maker of corporate jets, said it expects profit to more than triple this year as revenue increases by about 11%. But its earnings forecast came in shy of analysts' expectations, piquing investors' fears of margin erosion.CEO Scott Donnelly said that while corporate jet orders had begun to recover, production rates at Cessna remained low even compared with the unit's reduced capacity after two years of aggressive cost-cutting and layoffs."We're still talking about very low production rates, so we still have a lot of inefficiencies built into the system," Donnelly told investors on a conference call. "Overhead absorption is challenging in that environment."At Cessna rival Gulfstream, revenue and profit margins rose in the quarter, boosting results at parent company General Dynamics. Textron shares fell 3% to USD 26.24 in midday New York Stock Exchange trading.While Providence, Rhode Island-based Textron cited structural cost concerns, executives at United Tech said rising commodity prices would pressure margins this year.The soaring cost of raw materials including oil, copper and corn has emerged as a major worry for corporate America this year, leaving executives with the choice of allowing their profit margins to erode or trying to raise prices at a time when many consumers remain worried about the economy.Rockwell on a roll Rockwell Automation saw its shares soar as much as 10% to a lifetime high after the maker of equipment that companies use to make their factories run smoothly reported profit that easily topped analysts' forecasts and sharply raised its forecast for fiscal 2011.It benefited from surging Asian investment in production.At the high end of its 2011 forecast, profit would surpass pre-recession levels, though Chief Executive Keith Nosbusch acknowledged that was not a certain outcome."We still have a ways to go, but I think today we feel we're on the trajectory that we will be able to get back to the pre-recession levels," Nosbusch said in an interview. "The industrial manufacturing economy has led the recovery, but what we need to see is the consumer get back greater confidence."Rockwell shares were up USD 6.62 to USD 81.31 in midday trading on the New York Stock Exchange. Earlier they reached a lifetime high of USD 82.49.Beyond the still-high unemployment weighing on the US economy, another big risk facing the industrial sector is that Chinese demand will slow as Beijing moves to head off inflation.That has many industrial executives taking a cautious position, said Matt Collins, an analyst at Edward Jones."It's early in the year and there's not a lot of upside to raising the bar at this point," he said. "I don't think you're going to see too many companies at this point providing blowout guidance. You see that with Boeing today." Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
