TEXT-S&P: U.S. capital goods companies' slowdown continues

Thu Nov 15, 2012 3:49pm EST

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Nov 15 - Growth continued to slow for U.S. capital goods companies in the
third quarter of 2012, in line with Standard & Poor's Ratings Services'
expectations, said a report published today on RatingsDirect titled, "Snapshot:
Slowdown Continues For U.S. Capital Goods Companies In The Third Quarter."
Year-over-year organic revenue growth (excluding acquisitions and foreign
currency fluctuations) crawled to a barely positive 1% in the third quarter for
leading U.S. capital goods companies and several bellwethers contracted slightly
in the quarter on an organic basis. North American sales continued to be the
rosiest, although the fragile U.S. recovery remains at risk because of fiscal
cliff negotiations and the potential for spillover effects from weak regions
abroad. Most companies cited Europe as particularly weak in the third quarter,
and the Asia-Pacific region has also continued its deceleration, hurting results
there for many. 

Despite this, overall profitability has remained good by historical standards, 
a characteristic of most industry participants for the past couple of years. 
Benign material inflation and the benefits of heavy restructuring since the 
severe 2009 downturn are the most likely reasons for this, in our view. 
Furthermore, good credit measures and cash balances provide most of these 
issuers with capacity to absorb some deterioration in operating conditions.

Our biggest concern is still that financial policies may become increasingly 
risky, which could threaten credit quality if another economic downturn 
occurs. Risks related to the general economy have remained significant, and 
the outlook for 2013 seems unlikely to improve meaningfully from 2012. 
Continued growth, albeit decelerating, supports credit quality for most of the 
large capital goods players we rate. Credit measures remain at or near levels 
we expect for the ratings. Despite the risks, we expect credit quality to 
remain fairly stable for U.S. capital goods companies.

The report is available to subscribers of RatingsDirect on the Global Credit 
Portal at www.globalcreditportal.com. If you are not a RatingsDirect 
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 
or sending an e-mail to research_request@standardandpoors.com. Ratings 
information can also be found on Standard & Poor's public Web site by using 
the Ratings search box located in the left column at www.standardandpoors.com.
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