Manufacturers say demand up after cliff standoff

BOSTON (Reuters) - Top manufacturers sounded a confident note about their expectations for 2013 on Wednesday as fears of the year-end "fiscal cliff" faded into memory.

Textron Inc laid out an earnings forecast that would represent growth of about 12 percent, while larger peer United Technologies Corp reiterated a projection that its profit would rise about 13 percent.

Executives at each company said that, after seeing a year-end pause in ordering as customers worried about a budget standoff that could have triggered large spending cuts and higher taxes in the United States, demand is recovering.

"What we see in the economy in the U.S. is that the rebound in the housing market is really having a pull-through effect on the rest of the economy," said Greg Hayes, chief financial officer of United Tech, in an interview. "Commercial construction is coming back. We saw particular strength in North America and Asia, not as much of a story in Europe, as you can imagine.

The U.S. housing slump set the 2007-2009 recession in motion and a slow recovery in that market has been one important drag on a long, sluggish recovery. Recent government data have shown a pickup in demand, with a report last week showing housing starts surged to a four-year high in December.

Hartford, Connecticut-based United Tech is the world's largest maker of elevators and air conditioners and also produces Pratt & Whitney jet engines and Sikorsky helicopters. It also noted that airlines' orders for spare parts for jet engine had risen in the quarter, reflecting higher rates of travel.

"The path gets a little easier," said Daniel Holland, equity analyst at Morningstar, who covers United Tech. "If you look at all the pieces, a housing recovery here and in China, and an improving environment for Otis (elevators) in China, they have decent, positive momentum."

Meanwhile, Textron said it expects sales of its Cessna corporate jets to pick up this year, after a year-end drop that the Providence, Rhode Island-based company blamed on "fiscal cliff" worries.

"We probably have had more order activity than we're used to seeing at the beginning of January," reflecting orders that had been delayed during the "fiscal cliff" standoff, said Chief Executive Scott Donnelly, on a conference call with analysts. "We'll see a degree of uncertainty in the jet market as Washington works through its fiscal challenges, but we believe demand will solidify as those uncertainties are reduced."

While the White House and Congress averted the crisis that could have been triggered by allowing the U.S. economy to go over the "fiscal cliff", an event that economists said would have sent the nation back into recession, budget battles continue.

On Wednesday, U.S. lawmakers are expected to vote to extend by four months the government's ability to borrow money, effectively suspending rules that allow the nation to borrow no more than $16.4 trillion.

Both companies also have significant defense businesses, and face the risk that the U.S. will continue to scale back spending on weapons, such as United Tech's Black Hawk military helicopters and Textron's heavy armored vehicles.

GROWTH FORECASTS

United Tech stood by its forecast, first issued last month, that called for 2013 earnings to rise by about 13 percent to a range of $5.85 to $6.15 per share, with sales up about 12 percent to a range of $64 billion to $65 billion.

Textron issued a 2013 forecast that called for profit to rise by about 12 percent to a range of $2.10 to $2.30 per share, with revenue up about 6 percent to $12.9 billion.

The results came a few days after General Electric Co , the largest U.S. conglomerate, said that it ended 2012 with a record-high order backlog and sounded a confident note on 2013, sending its shares higher on Friday.

The manufacturing sector has been one of the better performers this quarter, with 80 percent of the industrial companies in the Standard & Poor's 500 index <.spx> topping analysts' forecasts. That's better than the 68 percent of companies across the index that have beaten estimates.

United Tech and Textron shares, each of which had risen roughly 15 percent over the past six months, outpacing the broader U.S. market, were little changed in early trading.

United Tech rose 70 cents, less than 1 percent, to $88.17 and Textron gained 1.2 percent to $27.40. Both trade on the New York Stock Exchange.

Investors will get more news on the sector later this week, when 3M Co and Honeywell International Inc are due to report results.

(Reporting By Scott Malone; Editing by Theodore d'Afflisio and Andrew Hay)

Source: http://news.yahoo.com/manufacturers-demand-cliff-standoff-141129696--business.html

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