Weak Europe, strong dollar temper industrial outlook
NEW YORK/BOSTON (Reuters) - Manufacturers reined in 2012 sales and profit forecasts on Tuesday even as several companies reported higher-than-expected quarterly earnings that showed they were overcoming weak European demand and the impact of a stronger dollar.
Illinois Tool Works Inc (ITW.N), Pentair Inc (PNR.N) and Paccar Inc (PCAR.O) were among the companies that beat Wall Street forecasts. The results showed, though, that Europe's slow economies were taking their toll on U.S. industrials, some of which generate as much as a third of their sales from the region. Several companies cut their 2012 forecasts.
United Parcel Service Inc (UPS.N) and DuPont (DD.N) also sounded cautious notes on the rest of 2012, adding to investors' concern.
Recent results show the U.S. economy is slowing down in line with others, but not as badly as investors had feared, said Catherine Avery, president of money management company CAIM LLC.
"North America for ITW was pretty good," Avery said.
While revenue at Illinois Tool Works and many other companies missed Wall Street's expectations, manufacturing stocks are attractively valued, she said.
"They're squeaking by, which is great in this environment," Avery said. "What we really need to happen next is to get the revenue numbers up, and that's only going to happen once we get on a path to better global growth."
She favors industrial names like United Technologies Corp (UTX.N) and Emerson Electric Co (EMR.N), in part for their dividends.
Investors showed some relief that companies were managing to increase profit in uncertain times. Shares of Paccar were up 4.5 percent at $39.47, while Pentair rose 4.7 percent to $41.46. ITW fell 3.1 percent to $51.92.
Pentair, which makes pumps and filters, said it expected Europe's slump to moderate in the second half.
"The rate of decline in volumes appears to be moderating in Europe," Chief Executive Randall Hogan told investors on a conference call.
Still, the company cut its full-year global revenue target by almost 3 percent to $3.6 billion. It forecast a decline of 6 percent to 7 percent for European revenue, excluding the effect of exchange rate fluctuations, for the second half of the year, compared with an 8 percent drop for the first half.
ITW, which makes construction materials, welding equipment and restaurant supplies, reported a slightly higher-than-expected profit as growth in North American markets offset sluggish demand overseas, but it cut its full-year sales and earnings forecast.
Earnings from continuing operations of $1.11 a share were 1 cent ahead of estimates. ITW, which gets almost one-third of sales from Europe, said the strong dollar was a bigger headwind than expected, adding that it expected international sales to remain sluggish.
Pentair's 7.7 percent rise in earnings topped analysts' expectations as it benefited from higher selling prices for its pumps and filters used in applications including municipal water systems and homes.
The company, which generates about a fifth of its sales in Europe, forecast a 2012 profit, excluding special items, of $2.70 to $2.76 per share, a range that at its midpoint is roughly in line with April's outlook.
Heavy truck maker Paccar reported a 24 percent rise in profit that beat analysts' expectations, but represented a slowdown from torrid growth over the past few quarters. It warned weak U.S. and European economies could hurt sales for the rest of the year.
Paccar cut its projection for industrywide sales of tractor trailers in the United States and Canada this year to a range of 210,000 to 230,000 trucks, down from its April forecast of 210,000 to 240,000.
Recent economic data has suggested overseas demand is tempering the U.S. industrial outlook, but U.S. manufacturing continues to expand.
Financial information firm Markit said on Tuesday its U.S. "flash" manufacturing Purchasing Managers Index for July fell to 51.8 from 52.5 in June. July marked the fourth consecutive month of slower growth and the sector's weakest showing since December 2010. But the index remained above 50, indicating factory activity is increasing, only less rapidly.
Earnings growth among multi-industry companies is coming in well ahead of forecasts, Barclays analysts said in a research note. Instead of the expected 5 percent profit increases, the average pace is closer to 7 percent or 8 percent, a minimal deceleration from the two prior quarters.
"The world is sluggish, but the cycle remains on track," the analysts said. "China appears to be finding a bottom but not turning up yet, other emerging markets as well, Europe is very weak but not sequentially worse, the U.S. remains the main industrial growth driver and has slowed less than we thought."
In other industrial earnings results, Carlisle Cos Inc (CSL.N) and Ametek Inc (AME.N) reported quarterly profits that beat Wall Street's expectations.
Carlisle benefited from demand for construction materials [ID:nL4E8IO1YP], while Ametek, which raised its full-year earnings forecast, cited growth at its aerospace and oil and gas businesses. [ID:nL4E8IO2RV]
Late on Monday, Crane Co (CR.N), whose products range from aerospace electronics to vending machines, also posted a better-than-expected profit, but said it would cut jobs in Europe to reduce costs.
Pump maker Idex Corp (IEX.N) posted weaker-than-expected quarterly results as it experienced weakness in Europe, and it cut its full-year profit forecast.
(Reporting by Nick Zieminski in New York and Scott Malone in Boston; Editing by Lisa Von Ahn)