Moment of truth approaching for U.S. manufacturers

Fri Oct 12, 2012 1:39am EDT
 
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By Scott Malone

BOSTON (Reuters) - How far can cost-cutting get you in a slowing economy?

That's the question the U.S. manufacturing sector will answer over the coming weeks. Through the first half of the year, big industrial companies including General Electric Co GE.N, United Technologies Corp UTX.N and Caterpillar Inc CAT.N notched impressive profit growth despite shaky demand, largely thanks to their success in boosting productivity.

But that bit of management magic may have run its course - Wall Street expects manufacturers to report a sharp slowdown in earnings growth in the just-ended third quarter, as Europe's deteriorating economy, slowing growth in Asia and the risk of the United States going over a self-imposed fiscal cliff cause customers to throttle back spending even further.

Warning signs abound. In recent weeks, Caterpillar, United Tech and FedEx Corp FDX.N have noted that the world economy is slowing - and that they are bracing for an extended period of tepid growth.

FedEx, the world's No. 2 package-delivery company, this week unveiled plans to cut costs at its air-express operation by about $1.7 billion over the next four years, because it no longer expects that business to maintain its prior growth rate, which was twice that of global GDP growth.

Despite those cost-cutting plans, analysts expect profit for FedEx's 2013 fiscal year, which ends in May, to be roughly flat after rising about 40 percent in fiscal 2012 - suggesting that belt-tightening can only do so much to offset a weak economy.

"We are operating in the most tepid post-recession recovery in the modern era," David Bronczek, who heads the company's air express arm, told investors.

Others have been more bullish - GE late last month raised its full-year sales growth target, saying demand for jet engines, electric turbines and other heavy equipment has held up despite a tricky global economy.   Continued...

 
A scratched and worn Caterpillar logo is pictured at the back of a bulldozer in the rental equipment yard of Holt Caterpillar, the largest Caterpillar dealer in the United States, in San Antonio, Texas March 19, 2012. REUTERS/Richard Carson