Manufacturers warn of ‘fiscal cliff’ threat

         General ElectricandHoneywell, two of the largest American manufacturers, have reported robust results from their industrial businesses but warned of the threat posed by the approaching “fiscal cliff”: the possibility of steep tax rises and spending cuts taking effect in the US at the end of the year.

         Both companies described global economic conditions as “challenging” but said they were continuing to increase their earnings through cost cutting and margin improvements.

         They both raised concerns about the gridlock in Washington over budget policy. Dozens of tax cuts and allowances will expire and spending cuts will be triggered automatically from January 1 unless Congress can reach a deal.

         GE, the largest US industrial group by market capitalisation, reported a 7 per cent rise in pre-tax profits and earnings in line with analysts’ expectations but surprised with slower than expected growth in revenues. It also cut its guidance of revenue growth for the full year to 3 per cent, from a previous projection of 5 per cent.

         The news hit the company’s shares, which closed down 3.4 per cent at lunchtime in New York at $22.03.

         However, Keith Sherin, the company’s chief financial officer, said the slower revenue growth was a result of GE Capital, the finance division, shrinking faster than previously planned, as the group worked to reduce its reliance on financial services. “We feel that we’ve had a pretty good quarter,” he said.

         Adjusted earnings per share, excluding pension costs, were in line with forecasts at $0.36, up an underlying 13 per cent. The group also reiterated its guidance that it expected double-digit earnings growth for the year as a whole.

         Jeff Immelt, chief executive, pointed to the company’s success in increasing margins at its industrial businesses by 0.7 percentage points compared with the third quarter of 2011 – a feat that some analysts had expected would be difficult given the slowdown in the world economy.

         While several companies have been warning of weaker demand in emerging economies, GE said revenues in its “growth market” businesses were up 9 per cent, with double-digit growth in China, Africa and Latin America.

         Mr Sherin warned, however, that the fiscal cliff could have a large effect on the US. “It affects us the same as everyone else,” he said. “We hope it can be resolved with bipartisan work, for the good of the country and the world.”

         Honeywell, which makes aircraft systems, components and controls, stuck with its central estimate for full-year earnings, in spite of a near halt to sales growth, as it raised its forecast profit margins.

         Dave Anderson, chief financial officer, said the company’s “formula” was working “in an otherwise challenging environment”.

         However, he also warned that the potential “fiscal cliff” presented risks to demand. Mr Anderson said he hoped to see politicians “applying some intelligence” to resolving the issue.

By Ed Crooks and Robert Wright in New York, source:http://www.ft.com, October 19, 2012