WRAPUP 3-Parker, ITW suggest healthier industrial economy

* Parker Q1 EPS $1.51 vs. $1.07 expected

* Parker sees FY 2011 EPS $5.20 to $5.80

* ITW Q3 EPS $0.83 vs Wall Street view of $0.82

* Parker up nearly 5 pct, ITW off nearly 5 pct
(Adds fund manager comment on economy, updates shares)

By Nick Zieminski and James B. Kelleher

NEW YORK/CHICAGO, Oct 19 (BestGrowthStock) – A rebound in
industrial markets, driven by restocking after a long recession
and infrastructure spending by well-funded governments like
China’s, is again helping lift U.S. manufacturers’ earnings.

Strength in industrial markets, which often lead economic
recoveries as companies re-equip after a recession, supported
profits in the latest quarter at diversified industrials Parker
Hannifin Corp (PH.N: ) and Illinois Tool Works Inc (ITW.N: ).

Both reported higher-than-expected profits and sales, and
raised full-year earnings forecasts. Parker beat by a wide
margin, and its shares jumped almost 5 percent. ITW stock fell
almost 5 percent, however, amid a Deutsche Bank downgrade and
disappointment with its acquisitions pace.

Government spending on infrastructure in China and other
countries is driving demand for industrial products, said
independent industrial analyst Brian Langenberg of Langenberg &
Co, but expectations are high.

“There’s real demand in markets where you’re doing stuff
with grid, you’re doing stuff with roads,” he said.

The trend could also mean strong results at other companies
that sell into industrial markets, including Eaton Corp
(ETN.N: ), Danaher Corp (DHR.N: ) and Dover Corp (DOV.N: ), which all
report this week.

For demand to broaden out, especially in the United States,
the regulatory and tax environment needs to become clearer.
Investors are awaiting next month’s elections and the potential
for legislative gridlock. Late-cycle markets like commercial
construction or capital spending to boost capacity will not
pick up before late 2011, Langenberg added.

Industrial stocks have outperformed other sectors in recent
months, largely because industrials have greater exposure to
fast-growing emerging markets, said Michael Cuggino, president
of the Permanent Portfolio Family of Funds, where holdings
include ITW and Parker.

“They both make very unglamorous products that are
necessary for economic activity,” Cuggino said. “These
companies give you an indication of the health of economic
activity, because they’re producing things that go into other
products.”

Parker, which makes motion control technology for
manufacturing and aerospace, said profit tripled in the latest
quarter. Its two industrial segments reported the strongest
sales gains and increases in orders. [ID:nN18265482]

Among other industrial earnings, water heater and electric
motor maker A.O. Smith Corp (AOS.N: ) beat estimates and raised
its fiscal-year outlook, but said copper and steel prices were
reason for caution. Shares fell 1.5 percent. [ID:nSGE69H0M5]

The world’s top bearings maker, Sweden’s SKF (SKFb.ST: ),
raised its financial goals after forecast-beating earnings and
its shares jumped to a record high. [ID:nLDE69I098]

Shares of U.S.-based rival Timken Co (TKR.N: ) followed,
adding almost 3 percent.

BEWARE THE WHISPER NUMBER

ITW, by contrast, showed that merely beating by earnings
per share estimates by a penny is often not enough. ITW, whose
products range from industrial and adhesives to kitchen
equipment, reported improved demand from manufacturers for
welding and packaging products.

Third-quarter profit (Read more your timing to make a profit.) rose to $419.3 million, or 83 cents a
share, from $302.4 million, or 60 cents a share, a year
earlier. Sales rose 12 percent to $4.02 billion, slightly above
estimates. [ID:nN18259959]

But ITW shares, which had outperformed peers ahead of its
results, slumped, and analysts expressed disappointment with
ITW’s acquisition pace.

“Expectations were pretty high coming into the quarter,”
said Shane Sawyer, analyst at M&I Bank, whose Marshall
Large-Cap Growth Fund owns ITW, General Electric Co (GE.N: )
Emerson Electric Co (EMR.N: ), and Caterpillar Inc (CAT.N: ).

“It’s going to be tough for people to meet market
expectations,” Sawyer said. Companies this earnings season
often have to beat not just consensus estimates but also the
so-called whisper number, which is typically higher.

Although ITW results were mixed, “one of the key takeaways
that was a positive was their electronics business showed some
pickup,” said Chad Oviatt, portfolio manager of the Huntington
Macro 100 fund, which owns ITW.

“Their late-stage businesses are showing some positive
momentum,” Oviatt said.

Oviatt said he wanted to see more details about ITW’s
acquisitions strategy. The company said on Tuesday such
activity should improve this quarter and into 2011, after
contributing only modestly to the most recent quarter.
(Editing by Gerald E. McCormick and Matthew Lewis)

WRAPUP 3-Parker, ITW suggest healthier industrial economy