The flagging oil sector and volatile emerging economies are keeping pressure on U.S. industrial manufacturers such as General Electric Co and Honeywell International, which are cutting costs or squeezing supply chains to help churn out stronger profits.
The latest corporate reports, including Emerson Electric Co posting tepid order growth, served as fresh signs of weakness in key pockets of the industrial market that have plagued many manufacturers this year.
New data from the Federal Reserve also showed that U.S. industrial production fell for a second straight month in September on renewed weakness in oil and gas drilling, amid the steep slide in crude oil prices.
Honeywell still expects earnings per share to outpace core revenue growth this year, and GE expects the same for its industrial business. GE shares were up 3.7 percent in afternoon trading after the company reported better than expected quarterly profit, while Honeywell was off 2.1 percent.
“We have seen this across the board where oil and gas has been this tremendous headwind,” Edward Jones analyst Jeff Windau said. “There’s growing concerns there could be continued weakness in the businesses, but these companies have done a lot with restructuring.”
General Electric, which through acquisitions built an $18 billion business supplying oil and gas sector customers, warned that its oil segment could see revenue and profit fall as much as 15 percent in 2016 if the sector remains shaky. GE’s oil segment orders tumbled 38 percent in the third quarter and revenue dropped 16 percent.
But GE, aiming to cut $1 billion in segment costs between this year and next, held the division’s profit flat, when excluding currency swings.
Even with the oil pressures, GE Chief Executive Officer Jeff Bornstein told analysts on a conference call he expected overall earnings per share to rise by at least 10 percent next year.
“I think we feel reasonable about the outlook for 2016,” Bornstein said in an interview. “I don’t think we can be more confident than being reasonable.”
Oil weakness also undermined Honeywell’s results, and the company lowered its 2015 revenue forecast.
For 2016, Honeywell said sales in the performance materials and technologies business would be hurt due to declining orders from oil and gas customers.
In an interview, Honeywell Chief Financial Officer Tom Szlosek said as part of its efforts to operate efficiently, the company keeps a “regular pipeline of restructuring opportunities” for its supply chain, such as looking for inefficient factories to close or combining those not at full capacity.
“You’re not going to see us announce a massive layoff because there’s top-line pressure,” Szlosek said. “We’ve been dealing with top-line pressure in our businesses for the better part of 18 months now.”
(Reporting by Lewis Krauskopf in New York, additional reporting by Ankit Ajmera in Bengaluru; Editing by Bernard Orr)
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