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* Caterpillar, United Tech top analysts' EPS estimates
* Cost-cutting a major boost to bottom lines
* Caterpillar sees 2010 revenue up 10 pct-25 pct
* United Tech sees profit up in 2010, revenue view unclear
* Cat shares up 1.5 pct, United Tech down slightly
By Scott Malone and James B. Kelleher
BOSTON/CHICAGO, Oct 20 (Reuters) - Now what?
Heavy cost-cutting, primarily in the form of big rounds of
layoffs, paid off for diversified U.S. manufacturers in the
third quarter in the form of better-than-expected profits.
But in a sign that Wall Street's attention is turning to
when the industrial sector will start to climb out of
recession, investors bid up shares of Caterpillar Inc (CAT.N)
after it forecast strong 2010 revenue growth, and sold off
those of fellow blue chip United Technologies Corp (UTX.N),
which took a more conservative tone.
Caterpillar, the world's biggest maker of heavy equipment,
said it expected sales to rise 10 to 25 percent next year, as
the world economy recovers from a severe slump, which caused
construction activity to fall dramatically.
"We believe the third quarter marked the low point for
Caterpillar sales and revenues in what has been the toughest
recession since the 1930s," said Jim Owens, chief executive of
the Peoria, Illinois-based company. "We are seeing encouraging
signs that indicate a recovery may be under way."
[ID:nN16358657]
United Tech, the world's No. 1 maker of elevators and air
conditioners, said it expected to resume profit growth in the
fourth quarter and to continue that trend next year. But it
hung its hopes on the payoff from massive cost cutting, shying
away from predicting revenue growth.
"We feel confident we're going to grow earnings next year,
I think the question is going to be what happens with revenues.
If revenues come in stronger, there's going to be a lot of
tailwind for us," Chief Financial Officer Greg Hayes told
investors. "We're going to keep a lid on costs until we see
revenues solidly returning." [ID:nN20334533]
Hayes said United Tech would expand 2010 earnings even if
revenue is flat.
Hartford, Connecticut-based United Tech plans to spell out
its 2010 profit and revenue forecasts in December.
Caterpillar and United Tech were part of a rash of U.S.
companies that counted on cost-cutting to top Wall Street's
profit targets on Tuesday. That trend played out across all
industries, with chemical maker DuPont Co (DD.N)
[ID:nN20416505], money manager BlackRock Inc (BLK.N)
[ID:nN19359223] and drugmaker Pfizer Inc (PFE.N) [ID:nN208741]
relying on a similar approach.
(here)
'MODEST' REBOUND COULD HELP
Together, those two companies have eliminated almost 50,000
jobs since the start of the recession as they have scrambled to
lower fixed costs.
United Tech said operating margins in the quarter rose to
15.4 percent of sales, up from 14.7 percent a year earlier.
All that cost-cutting could position them to grow profit
quickly, if they can resume growing revenue.
"Cat should benefit from even modest economic recovery,"
said John Kearney, senior research analyst at Cedar Hill
Associates, a Chicago money-management firm.
One sign that United Tech, which also makes helicopters and
aircraft engines, could be approaching a turn in revenue was
that it noted orders -- an important predictor of revenue --
were starting to bottom out, particularly in China.
"For a company like United Technologies, it's all about the
orders," said Jason Small, assistant portfolio manager at
Chartwell Investment Partners in Berwyn, Pennsylvania, which
owns United Tech shares. "I'm willing to give them a pass on
revenue as long as the orders are improving."
INDUSTRIAL SHARES RISE
Other industrials that topped Wall Street forecasts and saw
their shares rise included Illinois Tool Works Inc (ITW.N)
[ID:nN20424540], which makes products ranging from fasteners to
food service equipment, and Parker-Hannifin Corp (PH.N)
[ID:nN20419442], which produces motion-control systems used in
factories and aircraft.
Caterpillar earned $404 million, or 64 cents a share, on
$7.29 billion in revenue. That beat analysts' average forecast
of 6 cents a share, according to Thomson Reuters I/B/E/S, but
lagged their $7.47 billion revenue forecast.
United Tech third-quarter profit came to $1.06 billion, or
$1.14 per share, on revenue of $13.38 billion. It beat
analysts' forecasts of $1.12 per share on revenue of $13.31
billion.
ITW earned $302.4 million, or 60 cents a share, topping
analysts' forecasts of 56 cents a share. But its $3.58 billion
in revenue came in shy of the $3.62 billion consensus.
Pentair posted earnings of $37 million, or 38 cents per
share, or 42 cents per share factoring out one-time items. That
was a penny ahead of analysts' average forecasts. Revenue of
$663 million fell short of Wall Street's $680 million
forecast.
Caterpillar shares were up 89 cents or 1.5 percent at
$58.74 on the New York Stock Exchange, after rising as much as
5.8 percent earlier in the day. ITW was up 2.2 percent at
$47.24 and Parker-Hannifin was up 4 percent at $57.45. United
Tech shares were down 0.8 percent at $64.94.
(Reporting by Scott Malone and James B. Kelleher, editing by
Matthew Lewis)
