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UPDATE 2-Kaydon outlook cautious; shares fall

(Recasts, adds analyst comments, share movement)

July 29 (Reuters) - Ball bearings maker Kaydon Corp's KDN.N quarterly profit narrowly beat Wall Street targets on higher sales of friction and velocity control products, but was cautious on its full-year outlook, sending its shares down 16 percent.

Meeting the earnings growth target of 10 percent to 12 percent for the year will be challenging due partly to delays in some military orders, Kaydon Chief Executive James O’Leary said.

Deutsche Bank analyst Nigel Coe said opportunities in the wind energy market may be gaining traction, but there were concerns of a deterioration in the legacy industrial businesses. He downgraded the company’s stock to “hold” from “buy.”

However, KeyBanc Capital Markets analyst Steve Barger said although the company’s outlook for the rest of the year was disappointing, it would be more than offset by solid order intake and backlog.

At the end of the second-quarter order entry rose 12 percent to $144.0 million and backlog jumped 61 percent to $324.0 million.

Barger also is more bullish on the company’s exposure to the renewable energy market and noted recent big-ticket investments, which could benefit the company.

Kaydon also expects to triple its revenue from the wind energy segment to about $90 million this year. Wind energy sales have so far totaled $34.9 million for the first half of the year.

For the second quarter, the company posted net income of $20.4 million, or 64 cents a share, compared with $19.6 million, or 61 cents a share, a year earlier.

Net sales, including results from the previously acquired Avon Bearings, rose 23 percent to $139.9 million.

Analysts on average expected earnings of 63 cents a share, before special items, on revenue of $133.7 million, according to Reuters Estimates.

Shares of the Ann Arbor, Michigan-based company were trading down $7.16 at $48.79 in afternoon trade on the New York Stock Exchange. (Reporting by Eric Yep in Bangalore; Editing by Pratish Narayanan, Anil D’Silva)

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