Mixed first half for controls sparked by market volatility
Comparing the first half of 1998 with the first half last year revealed some surprises for the controls industry.The all-industry composite for the 900 companies in Business Week magazine's recent Scoreboard showed an acceptable increase of 7% in sales along with a 10% increase in profits between the first six months of 1998 and 1997.
Comparing the first half of 1998 with the first half last year revealed some surprises for the controls industry.
The all-industry composite for the 900 companies in Business Week magazine's recent Scoreboard showed an acceptable increase of 7% in sales along with a 10% increase in profits between the first six months of 1998 and 1997. Any industry with better results would be considered to have done quite well. As it turned out, half the industry segments that supply controls did exceptionally well, while the other half did poorly. Firms classified as instrument suppliers also performed very well in 1998's first half and should maintain enough momentum to achieve good results for the year. Honeywell contributed more than half of this composite's volume and profit.
The electrical products group composite showed poor results compared to first-half 1997. Eaton and Rockwell make up almost half the volume and profit of this composite. Though they experienced lower sales, results ranged from slower-but-still-positive profits (Eaton) to negative-but-still-improved profits over last year (Rockwell).
Controls outpace consumer firms
Industries that are typically heavy users of controls showed mixed results. Half outperformed the all-industry composite for sales and profits. However, those below the composite (except for oil, gas & coal) didn't perform so badly.
Third-quarter earnings for many, mostly consumer product, companies didn't meet expectations. Two of the largest, Coca Cola and Procter & Gamble, both expect less profits in 1998 than last year. Much of this is blamed on Pacific Rim economic conditions. Devaluations from 30% to 50% occurred in these nations during the past 12 months. Devaluations usually increase exports and generate economic growth. That didn't happen this time because exports from Pacific Rim countries are still declining. For example, Korean exports decreased at a 28% annual rate during 1998's first eight months. Even Japan's exports are declining.
The huge size of the U.S. economy should insulate it from some global problems. However, with half the world's economies in the tank, isolation can't be expected to work. Multinational consumer-oriented companies are particularly sensitive to global pressures.
Suppliers may rebound
In the U.S., the Fed lowers interest rates to encourage domestic economic growth. It will take time to see if this remedy works, though it might briefly push up stock prices.
While the stock market's wild gyrations and ailments of the Pacific Rim and Latin America affect financial markets, they appear to have little or no influence on control user industries' spending habits. Consequently, slight improvements could result in a pretty good year for the controls industry.