Manufacturers beat Wall Street's profit view

By Scott Malone

BOSTON (Reuters) - Brushing aside surging energy and metals costs and a slowing economy, several top manufacturers reported better-than-expected profit on Thursday, in some cases raising their full-year targets, helped by solid demand outside the United States.

The Standard & Poor's capital-goods industry index .GSPIC rose as much as 2 percent after United Technologies Corp (UTX.N), Danaher Corp (DHR.N) and Illinois Tool Works Inc (ITW.N) reported second-quarter profits that topped Wall Street's expectations and raised their outlooks for the year.

Investors even bid up shares of motorcycle maker Harley-Davidson Inc (HOG.N), which reported a profit drop that was less severe than expected, as international sales offset softening U.S. demand in the face of a credit crunch and surging gasoline prices.

United Tech raised the top end of its 2008 profit forecast by 10 cents to $4.95 per share, which would represent 16 percent growth over last year.

"While the challenges in the world's economies we saw at the outset of the year are materializing, especially with higher oil prices impacting the airlines and the U.S. economy generally, we remain confident in our ability to deliver on this increased guidance," said Louis Chenevert, chief executive of Hartford, Connecticut-based United Tech.

The world's largest maker of elevators and air conditioners said the increase reflected strong growth at its Otis elevator and fire and security businesses, which have been helped by strong non-residential construction activity outside the United States.

United Tech said its commodity costs had risen faster than expected, but it had been able to pass on much of the increases to customers.

The raft of results showed that demand outside the United States is holding up for diversified industrials. That provided a double lift, offsetting weak demand at home, and further boosting profit when foreign earnings were converted back into weak dollars. United Tech said 4 cents per share of its earnings growth were related to currency fluctuations.

"They still believe in the emerging markets and the foreign markets as a place to sell. That's a positive," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, which oversees about $20 billion in funds and holds United Tech shares.

HOG MILD

Harley-Davidson, hit by a credit crunch and housing slump that have left U.S. consumers less able to buy its high-end motorcycles, known as "hogs," and surging gasoline prices that have made recreational vehicles less appealing, posted a 23 percent profit drop that was not as bad as investors feared.

The Milwaukee-based company in April warned Wall Street it was slashing production and laying off hundreds of workers to deal with the downturn.

"The actions we took to reduce shipments to our U.S. dealers and our related work force reduction position us appropriately for the current economic environment," said Jim Ziemer, the company's chief executive.

But Textron Inc (TXT.N), the world's largest maker of corporate jets, spooked investors with a third-quarter profit forecast that was well below Wall Street's expectations.

The Providence, Rhode Island-based company said it expected to report third-quarter earnings of 80 cents to 90 cents a share -- perhaps lower than last year's comparable 85 cents per share. Analysts had expected 99 cents.