July 20, 2011 / 5:34 PM / 8 years ago

Strong foreign demand drives U.S. manufacturers

BOSTON/NEW YORK (Reuters) - Strong demand from emerging markets is driving profit growth for U.S. manufacturers this year, but executives do not expect that to be much of a lift for the sluggish U.S. economy.

In fact, a top executive at United Technologies Corp (UTX.N) attributed the 18.9 percent rise in profit at the world’s largest maker of elevators and air conditioners partly to the company’s ability to hold the line on hiring.

“We’ve driven all this cost out. Sales have come back, but people have not,” said Greg Hayes, chief financial officer at the Hartford, Connecticut-based company. “It’s the structural cost reductions that we have done over the past few years that have allowed us to see strong bottom-line results.

While the company is adding some engineers in the United States, it is doing most of its hiring right now in emerging markets where demand for its products is growing.

“Until you see a big resurgence in consumer spending in the United States, I don’t think you’re going to see a big improvement in the employment picture,” Hayes said.

Stubbornly high unemployment — which has held between 9 and 10 percent for most of the past two years — stands as one of the top problems facing the U.S. economy and is shaping up as a key issue in next year’s presidential election.

Big U.S. employers continue to cut. This week, Cisco Systems Inc (CSCO.O) and Lockheed Martin Corp (LMT.N) said they would cut some 18,000 workers from their payrolls.


Big companies such as United Tech and Textron Inc (TXT.N), which also reported better-than-expected profit on Wednesday, have turned more of their focus overseas to markets where demand is growing, investors said.

“Domestic uncertainty is not holding back Carrier and Otis segments internationally,” said Tim Hoyle, the director of research at Haverford Quality Investing, referring to United Tech’s air-conditioning and elevator units.

“Growth in emerging markets’ airlines (helps) Pratt & Whitney,” added Hoyle, whose Radnor, Pennsylvania-based company manages more than $6 billion and holds United Tech shares.

United Tech posted earnings that came in 4 cents per share ahead of analysts’ forecasts, according to Thomson Reuters I/B/E/S, and raised its full-year forecast for the third time since December.

TE Connectivity Ltd (TEL.N), a U.S. maker of electronic connectors previously known as Tyco Electronics, also posted better-than-expected results, saying that telecommunications companies in Australia, China and Europe are making big investments in broadband networks outside the United States, driving demand for its products.

“These companies have been exhibiting really strong profitability in a very difficult economic environment,” said Catherine Maniscalco Avery, president and CEO of CAIM LLC, which invests in dividend-paying stocks.


Makers of aircraft, engines and aviation components got a big boost on Wednesday when No. 3 U.S. airline American Airlines, owned by AMR Corp AMR.N, unveiled a $40 billion order for at least 460 narrowbody jets from Boeing Co (BA.N) and Airbus EAD.PA running from 2013 through 2022.

That news could provide a long-term lift for companies, including United Tech, as well as General Electric Co (GE.N) and Honeywell International Inc (HON.N), which make aviation components and are due to report results on Friday.

Boeing offered a new engine on the 737 — the LEAP-X, produced by an alliance of GE and France’s Safran SA (SAF.PA) — to clinch the order and avoid losing more ground to archrival Airbus. Investors fretted the move, which came after Boeing considered entirely redesigning the 737, boxed United Tech’s Pratt & Whitney arm out of that side of the deal.

“Go back a few months ago and the expectation was Boeing would go with an all-new plane and keep Pratt in the running,” said Matt Collins, a capital goods analyst at Edward Jones in St. Louis. “I think this AMR situation forced their hand.”

United Tech shares were down 3 percent at $86.14 at midday on the New York Stock Exchange.

Demand for corporate jets, which has been slow to recover since a precipitous drop during the financial crisis, is starting to show signs of turning, said the head of Textron, which is the world’s largest maker of business jets.

“We expect a significant pick-up in demand in the second half of the year, similar to what we saw last year,” said Scott Donnelly, chief executive of Textron, which also topped analysts’ forecasts, but held its full-year forecast steady.

Textron shares were up 9 percent at $24.09 and TE Connectivity was up 1.6 percent at $35.93. Both trade on the NYSE.

Reporting by Scott Malone in Boston and Nick Zieminski in New York; editing by Matthew Lewis and Andre Grenon

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