Industrials could outshine broader market in second-quarter

Monday, July 16, 2012 - New York—With the global economic picture worsening, earnings warnings piling up, and the dollar strengthening, the outlook for U.S. manufacturing companies might appear to be unremittingly grim. Not the case say some investors and securities analysts.

Shares of big U.S. manufacturers, which have lagged the broader U.S. market this year, could be set for a summer upswing if the earnings reports they issue over the next few weeks meet Wall Street’s expectations. If that happens the sector will be a rare bright spot in an otherwise grim quarter.

Optimists note that pricing is running ahead of input costs, in some cases enough to offset the hit from a stronger dollar and softer European market. Also, fears of a European catastrophe have receded, and China’s economy may have already bottomed. China data on Friday showed 7.6 percent growth in the second quarter, the slowest pace in three years, but economists noted broad stability in investment and industrial production.

Analysts expect industrial companies in the broad Standard & Poor’s 500 index (.SPX) to notch 9 percent earnings growth for the second quarter, helped by sales in the auto, aerospace and healthcare sectors, especially in the United States. Overall, the S&P 500 is expected to see a 2 percent profit decline.

And even if some major companies report disappointing results, some analysts and investors argue that share prices have fallen to levels that mean they can soak up some bad news.

That forecast is buoyed by the broad geographic exposure of big manufacturers including General Electric Co (GE), Caterpillar Inc (CAT) and Emerson Electric Co (EMR), that can often weather a downturn in one market - Europe, currently - by finding growth in Asia or the United States.—Agencies