6 Min Read
BOSTON (Reuters) - Some U.S. manufacturers shook off weak European demand in the latest quarter, with makers of products ranging from bulldozers to cars finding solid demand at home was enough to offset weakness abroad.
Caterpillar and Boeing raised their forecasts for the rest of the year, while Ford and Rockwell cut theirs, in part due to Europe's ongoing financial crisis.
Wednesday's earnings reports were less grim than a day earlier when United Parcel Service Inc (UPS.N), printer maker Lexmark International Inc LXK.N and phone company AT&T Inc (T.N) warned that belt-tightening by their corporate customers was taking a toll on results.
"The U.S. has a few positive things going for it. There's a stronger currency, which will draw in investment, the housing sector is slowly repairing itself and commercial construction is still very tepid but that's not going to get worse and could become a positive," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio.
"I don't think we're looking at a recession or a recessionary environment (in the United States), we're just looking at a really slow period," he said.
Sixty-five percent of the 195 companies in the Standard & Poor's 500 index .SPX .INX that have reported earnings so far this quarter have topped Wall Street estimates, with earnings on average up 13.6 percent, according to Thomson Reuters I/B/E/S. But the majority -- 59 percent -- have missed revenue forecasts, with mean revenue up just 3.9 percent.
Even at companies that had managed their way around Europe, that economic crisis remained foremost in executives' minds.
"We understand the world is facing economic challenges, and if it becomes necessary, we are prepared to act quickly as we did in late 2008 and 2009," said Caterpillar Chief Executive Doug Oberhelman.
The world's largest maker of earth-moving equipment slashed about 20,000 jobs in 2009, in the wake of the financial crisis.
"While we're prepared, the good news is, this doesn't feel like 2008," Oberhelman said. "Interest rates are low, central banks are prepared to inject more liquidity if needed, and housing is coming off lows, not a peak, and seems to be improving."
Caterpillar's results benefited from strong demand from Asian and North American mining sectors. North American equipment sales rose 34 percent in the quarter, while sales in the Asia-Pacific region were up 25 percent.
Demand for mining equipment also lifted Rockwell Automation in the quarter. CEO Keith Nosbusch said that reflected the fact that mining equipment is a less-discretionary purchase for a corporate customer than office gear such as printers and phones.
"Mining tends to be a tough application where the equipment wears out," Nosbusch said. "If your mines are running and producing -- and because of the commodity prices they are -- you tend to have to maintain them and part of that means replacement equipment."
No. 2 U.S. automaker Ford beat analysts' expectations in the second quarter but warned investors it now expects operating profit to decline for the year due to mounting losses in Europe.
"As we look over the next five years and lay out all of our plans for our business, we just think the situation in Europe is going to be challenging," Chief Financial Officer Bob Shanks told reporters at Ford's headquarters.
Boeing, which reported better-than-expected 3 percent earnings growth and is on track to overtake European rival Airbus EAD.PA as the world's largest plane maker, tried to restrain Wall Street's enthusiasm.
CEO Jim McNerney warned in a slide presentation for analysts that "global economic growth continues at a slow pace (and) uncertainties remain."
Caterpillar shares were up 0.9 percent at $82.13 on Wednesday afternoon, while Ford stock was down 0.9 percent at $8.98. Boeing shares were up 2.8 percent at $74.04. All three trade on the New York Stock Exchange.
Companies reporting results on Wednesday generally saw solid revenue growth in North America, for two reasons: demand was higher and the value of their sales in Europe was reduced by the slump in the euro currency versus the dollar.
Rockwell Automation, a maker of equipment that runs factories and other industrial processes, saw its fastest sales growth in Canada, where demand from miners helped drive sales up 19 percent. Sales in the United States -- its largest market -- rose 6 percent, and revenue fell 6 percent in Europe, the Middle East and Africa, as well as Latin America.
It reported third fiscal-quarter profit that topped Wall Street's expectations, but cut its forecast for the rest of the year, sending shares down 1.7 percent to $64.05 on Wednesday afternoon.
TE Connectivity TEL.N, the former Tyco Electronics, also reported relatively stronger results in the Americas -- where its sales were up 1 percent -- versus Europe, the Middle East and Africa, where they fell 8 percent.
The maker of electronic connectors said it expected a further slowing in Europe in the current quarter, partly because of production shutdowns among auto manufacturers.
"I would suspect there will be some downgrading of expectations, because they're such a leveraged play on the global infrastructure build-out in developing economies," said Robert McIver, co-portfolio manager of the Jensen Quality Growth Fund, referring to United Tech.
Additional reporting by Ernest Scheyder and Nick Zieminski in New York, Deepa Seetharaman and Bernie Woodall in Detroit and Bill Rigby in Seattle; editing by Matthew Lewis