Manufacturing execs fight fear with flexibility

Tue Jun 5, 2012 2:29pm EDT

* European demand no worse than expected-execs

* Caterpillar, 3M officials ready to react

* Euro crisis, U.S. job worries fuel investor angst

By Scott Malone and Nick Zieminski

June 5 (Reuters) - Facing a rising current of economic worry, manufacturing executives are taking their cue from yoga. Flexibility is their mantra.

Officials from big U.S. industrials including Caterpillar Inc and 3M Co said they have not seen a sharp deterioration in European demand -- which they had expected to be weak -- but stand ready to cut back if things get worse.

The lessons of the 2007-2009 recession, which big manufacturers weathered by slashing tens of thousands of workers, are burned in their brains.

"You do have to be prepared and you do a lot of work ahead of time on flexibility," said Rich Lavin, group president at Caterpillar who oversees emerging markets and construction operations.

But he noted the Peoria, Illinois-based company has not seen demand for its earth-moving equipment decline. The company looks for profit to rise about 2 8 percent this year to $9.50 per share.

"In our particular case, we have a significant chunk of our workforce which is flexible, temporary, contract agency people," Lavin told an investor conference organized by J.P. Morgan. "We have quite a bit of flexibility within our labor agreements to do temporary facility shutdowns, if need be."

Caterpillar, the world's largest maker of earth-moving equipment, employs about 127,000 full-time and 28,000 "flexible" workers worldwide.

Investors have become increasingly concerned over the past few weeks that Europe's financial crisis will throw the 17-nation currency bloc into a sharper downturn and derail the United States' tepid recovery from the recession.

That has taken a toll on stocks. The widely watched Standard & Poor's 500 index has fallen almost 7 percent over the past month and its industrial component is down 9 percent.

Adding to worries, Friday's U.S. payrolls report showed fewer jobs were added than expected jobs in May, and the unemployment rate ticked up to 8.2 percent from 8.1 percent.

One of Lavin's peers, 3M Co Chief Financial Officer David Meline, said the company was also ready to react if the economy sours.

"We have the flexibility should there be a significant downturn in the economy. We don't believe that to be the case right now," said Meline.

He told the J.P. Morgan conference he had just returned from a trip through Germany and France and had not seen any significant change in European demand for 3M products, which range from films for TV screens to Post-it notes.

"Right now, I don't have anything to indicate we've seen some significant inflection," Meline said.

NO MARKED CHANGE

Despite investors' fears, executives overall haven't seen a sudden change in European demand -- which was expected to be weak this year.

"We haven't seen a marked change in end-market demand overall," said Jeremy Smeltser, a SPX Corp vice president who will become CFO this summer. "Europe has been softer than the rest of the world for us, year to date, but we haven't seen major change."

Lavin emphasized that while Caterpillar would be ready to cut production in the face of a drop in demand, it has no plans to jump the gun on a downturn.

"This is the third year in a row we've had this summer crisis of confidence in the world economy," Lavin said. "You don't completely discount it, but you have to manage your business based on what you're actually seeing on the ground and it really hasn't changed that much."

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