Conglomerates ready for slowdown? Wall St wonders

By Scott Malone

BOSTON (Reuters) - Investors will be watching next week's 2008 outlook briefings from four U.S. industrial heavyweights for any signs of order cancellations, capital spending cuts and cost slashing as they face an economic slowdown at home.

Investors and analysts who follow General Electric Co (GE.N), United Technologies Corp (UTX.N), 3M Co (MMM.N) and Honeywell International Inc (HON.N) said they expected the slowing U.S. economy to take a toll on revenue growth.

With a combined market capitalization of more than $500 billion, the size and variety of their operations make these blue-chip companies U.S. economic bellwethers. Their words will help shape investor opinion as to whether the United States faces a serious risk of recession.

"It's the source rather than the magnitude of improvement for '08 that's really likely to become the most critical evaluated factor," said Nicholas Heymann, director of global industrial infrastructure at Sterne, Agee & Leach Inc in New York.

"If it's margin expansion and acquisition benefits, or share repurchase, those are probably going to be viewed more favorably than if you're over-reliant on perhaps rosy macroeconomic projections or foreign exchange continuing to work the right way," Heymann said.

In the United States, manufacturers are facing economic headwinds that include the slumping U.S. housing market, a credit crunch and high energy and commodity costs.

The White House last month trimmed its 2008 forecast for growth in gross domestic product to 2.7 percent from 3.1 percent.

Executives see a slowdown coming. Less than half -- 44 percent -- of chief financial officers at 600 U.S. manufacturers expect the U.S. economy to grow next year, according to a Bank of America survey released on Thursday, down from 55 percent in last year's study.

HAWK'S EYE ON COST

Given a slowing economy, investors want reassurance that companies have a firm hand on costs.

"My biggest concern is, are they matching pricing with input costs?" said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati.

Sorrentino, who helps manage $6.5 billion in assets that include shares of GE, United Technologies and Honeywell, said he was also looking at backlog levels.

"Are orders being canceled?" he said. "Do we see over-ordering? Just to make sure that order books are in fact intact and legitimate."

One key sign of discipline would be their capital expenditure plans, he said.

"Is anyone talking about big capex plans? Is anyone talking about ramping up capacity?" Sorrentino said. "That's the kind of thing that worries me."