July 26, 2011 / 2:33 PM / 7 years ago

Consumer markets hurt some industrial earnings

NEW YORK/BOSTON (Reuters) - Disappointed investors dumped shares of several large U.S. industrial and transport companies after they warned of weak consumer markets, especially in the United States.

3M Co’s (MMM.N) earnings met Wall Street forecasts, and the global conglomerate reported strong industrial demand, but sharply lower sales in its display and graphics division. Its shares fell more than 4 percent on Tuesday, dragging down the Dow Jones industrial average .DJI.

3M said Japan’s March earthquake had reduced sales and profit margins in the display and graphics division, which makes specialty films for computers and televisions.

“If everybody else is beating and you’re not, you lose,” said analyst Brian Langenberg of Langenberg & Co. “It’s a relative beauty contest.”

Industrial peers W.W. Grainger (GWW.N), United Technologies (UTX.N), General Electric (GE.N), and Danaher (DHR.N) beat expectations this quarter, Langenberg said, while 3M’s display and graphics business missed on both sales and profits, in part because of production disruptions in Japan.

3M Chief Executive Officer George Buckley tied weakness in that segment to lower consumer spending.

“The LCD TV business is ... simply going through one of those down cycles that reflect inventory corrections and, ultimately, a less robust consumer end market,” Buckley said on a conference call.

Expectations were pretty high for 3M, said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland.

3M met Wall Street earnings estimates partly because of a weaker dollar and a boost from acquisitions “so maybe the quality of that wasn’t as high as people may have wanted to see,” Klein said.

“Display and graphics was the weak spot and that’s a consumer item,” Klein said. “That just speaks to the pullback by consumers. It’s not unexpected, but it’s a concern.”

Increases in raw material costs also pinched margins, as 3M could not recoup them through price increases.


Shares of United Parcel Service fell 5 percent after a modest earnings beat. The world’s largest package delivery company, whose results are a closely watched indicator of consumer demand, said it was cautious about its upcoming peak shipping season.

Illinois Tool Works Inc’s (ITW.N) quarterly profit missed Wall Street forecasts, and the industrial conglomerate said it expected moderating demand in the second half of the year, sending its stock down more than 7 percent.

Among other results on Tuesday, truck maker Paccar (PCAR.O) cited economic uncertainty when it lowered its estimate of this year’s heavy-duty truck production in North America.

Lennox International (LII.N), which makes furnaces and air conditioners, posted lower sales in its residential equipment unit and cut its outlook. Earnings missed Wall Street forecasts by a wide margin, and its shares fell nearly 8 percent.

A bright spot in U.S. industrial earnings was Cummins Inc (CMI.N), which credited strong international markets for its profit growth. The diesel engine maker said demand from truck, mining and energy markets remained strong and raised its earnings forecast.

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