As profits beat, economy weighs on U.S. industrials-WRAPUP 1

Friday January 29, 2010

By Nick Zieminski and James B. Kelleher

* 3M, Tyco, Danaher, Oshkosh beat forecasts

* Many keep 2010 estimates unchanged

* Caution prevails over 'choppy' recovery

NEW YORK/CHICAGO, Jan 28 (Reuters) - Profits at U.S. industrial companies continued this quarter's trend of beating Wall Street expectations, but many kept their 2010 forecasts unchanged and expressed caution over a choppy economic recovery, and most industrial shares fell.

"We're still sailing in some choppy economic waters," 3M Co Chief Executive George Buckley said.

3M, the biggest of the companies reporting on Thursday, beat estimates for the third quarter in a row and raised its full-year outlook, citing strong demand for all its products, including healthcare products and coatings for electronic screens.

The company, which makes everything from adhesives and abrasives to stethoscopes and insect repellent, said fourth-quarter net income rose to $935 million, or $1.30 a share, from $676 million, or 97 cents a share, a year earlier. Revenue increased 11 percent to $6.1 billion.

"There's growing concern that the U.S. economy is maybe stumbling and since stock prices have factored in hopes of a more robust rebound, we're seeing weakness in a lot of industrial names," said Adam Fleck, an analyst at Morningstar.

"It looks like 3M is getting roped into that selloff."

Tyco International Ltd reported a 10 percent increase in quarterly net income with improved margins in three of its five units, including its big ADT security services division, which is set to expand after the $1.9 billion purchase of a rival.

But while the industrial conglomerate kept its 2010 forecast unchanged, it mentioned continued weakness in its flow control segment, which makes valves, pipes and thermal controls.

Tyco's projected earnings range was below consensus estimates, but the company said its forecast did not factor in a significant improvement in economic growth.

"The wheels would have to fall off the economy at this point I think for us to be down to the low end of the guidance range we have," Chief Executive Ed Breen told analysts on Tyco's conference call.

MUTED RECOVERY

The recovery is going to be very choppy and growth is going to be muted, said Keith Springer, President of money manager Capital Financial Advisory Services in Sacramento.

But he said inventories continue to decline, which bodes well for the economy because it means companies will have to replenish inventories at the slightest hint of growth.

"What I like that I'm seeing, that they cut back on costs quicker than expected," springer said. "I was impressed that these big behemoth companies laid off quickly, cut costs quickly, and they have adapted output to meet demand much faster, which will get us through the recession quickly."

Danaher Corp, a manufacturer of dental and medical technology, specialty tools and water testing equipment, beat estimates as margins improved in its professional instruments segment, its biggest business. It also said its orders were continuing to improve.

Specialty truckmaker Oshkosh Corp reported stronger-than-expected quarterly earnings, driven by a big jump in vehicle sales to the military, but sales of equipment used by builders fell 60 percent, reflecting continued weakness in the residential and commercial real estate markets.

Polaris Industries Inc, a maker of all-terrain vehicles, snowmobiles and motorcycles, beat Wall Street expectations, as deep cost cuts outpaced declines in sales. It also said it was gaining share in key markets.

Textron Inc reported a narrower net loss, but set a much lower-than-expected 2010 profit target, signaling that weak demand for corporate aircraft would continue to haunt the world's largest maker of corporate jets.

MIXED SIGNALS

Sentiment about the economy has been improving, even as hard data has provided mixed signals on the recovery.

Durable goods orders rose in December for the first time in three months, the U.S. government reported on Thursday, but by less than economists had forecast. Orders for long-lasting U.S. manufactured goods are a leading indicator of manufacturing activity.

A quarterly survey of manufacturing sector executives found 35 percent believe the economy grew last quarter, up 22 points from three months ago and more than double the number who expect a contraction, according to PricewaterhouseCoopers.

Still, 18 percent said they expected the fourth-quarter GDP report, due Friday, to show contraction.

A separate CFO Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, showed an optimism index rising to 57 last quarter from 54 three months earlier.

Expectations for CFOs' own companies also rose, where earnings are expected to jump 22 percent, double the expected increase a quarter ago. Most don't expect layoffs this year, but fewer than half anticipate adding staff, according to the survey of 371 finance chiefs conducted this month. (Additional reporting by Scott Malone in Boston; Editing by Tim Dobbyn)

Keith Springer is President of Capital Financial Advisory Services, a registered investment advisor, providing Wealth Management and Mortgage Consulting Services.  For more information on how to build and maintain a solid retirement plan, please contact Keith Springer at 916-925-8900 or Keith@KeithSpringer.com