(October 23, 2010)

Diversified US manufacturers Honeywell International Inc and Ingersoll-Rand Plc beat Wall Street profit expectations and raised forecasts for the rest of the year, as strong demand from Asia helped offset a tepid recovery at home.

Emerging-market growth, particularly in China and India, will remain a major driver for the sector as it heads into 2011, according to Honeywell, the world's largest maker of cockpit electronics, which said it expects sales to grow by 5% or more next year.

"It's pretty muted growth in the developed economies of the US and Europe and continued pretty robust growth in the emerging markets, notably Eastern Europe and China, India, Brazil and Latin America," Chief Financial Officer Dave Anderson said in an interview. "We're looking at pretty low numbers for the US and Europe."

Honeywell and Ingersoll reported strong demand from Asia for equipment that is used to heat, cool and secure large buildings. That helped to offset a continued slump in nonresidential construction in their home markets.

Investors are looking to industrials to boost their presence in the region, particularly by selling more into the fast-growing Chinese construction sector. Honeywell generates about 40% of its revenue from equipment used in large buildings and 32% from the aviation sector.

China surprised investors on Tuesday by raising interest rates for the first time in nearly three years, in a bid to slow the rise in asset prices.

"If there's one thing that's working for anybody today, it's growth in the Asia-Pacific region," said Barbara Marcin, portfolio manager of the Gabelli Blue Chip Value Fund, which holds Honeywell shares. "Everyone would like to see Honeywell a little more exposed there."

Honeywell said sales to the Asia-Pacific region were up 21% in the quarter, more than twice the company's overall growth rate.

Morris Township, New Jersey-based Honeywell reported an 18% drop in net income, which it attributed to its aggressive approach to pension accounting.

Earnings per share came in at 64 cents, ahead of the 62 cents analysts had estimated, according to Thomson Reuters I/B/E/S.

Honeywell forecast full-year earnings of USD 2.52 per share, above its most recent outlook of USD 2.40 to USD 2.50. It was the third time this year that the company had raised this target.

It said that pension costs will continue to weigh on earnings next year, representing a drag of USD 350 million to USD 400 million on net profit.

Honeywell shares, which had been down earlier, were up 1.3% to USD 47.28 in late trading.

Faster growth

Ingersoll's net income rose 7% with earnings of 80 cents per share from continuing operations, 1 cent ahead of analysts' average estimate.

"We're seeing growth outside the US at three times growth inside the US, and four and five times that rate in India and China," said Ingersoll CEO Mike Lamach, who added that domestic demand, rather than exports, was driving growth in China.

Ingersoll will generate about USD 1 billion in China sales this year including revenue from joint ventures, Lamach said, about three times more than its revenue from India.

The company, which sells air conditioning systems, air compressors and security technology, noted the key non-residential construction market remains weak in the United States but should recover by late 2011.

Ingersoll stock rose 0.7% to USD 39.22.

Smaller industrial Dover Corp, which makes supermarket equipment, industrial pumps and valves, said profit more than doubled.

However, Dover did not beat forecasts by as wide a margin as in the past several quarters, and Dover shares fell 3.5% to USD 52.90.

Investors had been sensitive to any sign of weakness in industrial earnings reports this quarter. On Wednesday they bid shares of Caterpillar Inc down 1%, even after the world's largest maker of earth-moving equipment easily topped profit forecasts, amid concerns that its recent pace of profit margin improvement was not sustainable.

Caterpillar shares lost a further 1% Friday.

Shares of mining equipment maker Bucyrus International Inc slumped 6.8% after an earnings miss.

But rival Swedish machinery maker Atlas Copco beat forecasts and said demand was improving.

Next week brings results from Johnson Controls Inc, a maker of building efficiency systems; conglomerates 3M Co and ITT Corp; and bearings maker Timken Co, among US industrial names.

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