Wall Street braced for grim views from industrials
With some of the United States’ largest and most diversified companies ready to spell out their 2009 financial forecasts over the next two weeks, Wall Street is braced for bad news.
The question is how bad?
Investors expect many U.S. industrials to follow the lead of 3M Co (MMM.N: Quote, Profile, Research, Stock Buzz), which on Monday set a profit target for next year that was about 12 percent lower than analysts had forecast. What will be on their mind is how General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz), United Technologies Corp (UTX.N: Quote, Profile, Research, Stock Buzz) and other manufacturers plan to ride out the deepening global recession.
More job cuts are likely to be a key theme. Companies across all sectors of the U.S. economy, including Dow Chemical Co (DOW.N: Quote, Profile, Research, Stock Buzz), AT&T Inc (T.N: Quote, Profile, Research, Stock Buzz) and Caterpillar Inc (CAT.N: Quote, Profile, Research, Stock Buzz), are all shedding workers in a bid to cut costs.
A key worry for investors will be how order backlogs are holding up. Big-ticket capital goods such as jet engines, electricity-producing turbines and automation equipment are typically ordered months if not years in advance and industrial companies count on a backlog of orders to help smooth out results when the economy weakens.
“What are they seeing in terms of cancellations and how is the backlog holding up for projects that they’ve signed?” is a top concern of Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, which holds stakes in GE, United Technologies and Honeywell International Inc (HON.N: Quote, Profile, Research, Stock Buzz).
“If we’re starting to already see large-scale cancellations and a rapid erosion of backlog, the stocks are definitely vulnerable for another leg down,” Sorrentino said quick pay day loans.
Industrial shares have been hit hard this year, with the Standard & Poor’s capital goods industry index .GSPIC down about 46 percent, a steeper fall than the 38.5 percent slide of the broad S&P 500 .SPX and the 33 percent decline of the Dow Jones industrial average .DJI.
3M shares tumbled 5 percent on Monday after the company warned profit would fall next year.
LOWER GUIDANCE
Wall Street’s expectations are already low ahead of outlook briefings from United Technologies, Danaher Corp (DHR.N: Quote, Profile, Research, Stock Buzz), Honeywell, GE and ITT Corp (ITT.N: Quote, Profile, Research, Stock Buzz) over the next two weeks.
Analysts, on average, expect GE earnings per share to tumble 18.3 percent next year and Honeywell to fall 5.6 percent, according to Reuters Estimates. They look for United Tech EPS to grow 3.4 percent, ITT to rise 2.3 percent and Danaher to tick up 0.9 percent.
But even those forecasts may be too high, given the recessions in the United States, Japan and much of Europe, and fears that U.S. unemployment could near 10 percent next year.
“We sense that 2009 EPS forecasts are likely to be further trimmed by most companies,” Sterne Agee analyst Nicholas Heymann wrote in a note to clients.
He forecast that, even in the wake of recent job cuts, major U.S. companies could slash payrolls another 20 percent next year as they make dramatic moves to cut costs.
Filed under: technology by Fred