Top U.S. manufacturers report solid growth - but fears remain over Japan supply disruptions

The global economic recovery began to take hold in 2010, but during the first three months of this year, inflationary pressures started to derail the nascent growth. Nonetheless, some of the top manufacturers in the U.S. topped expectations during their first quarter earnings reports, spurring optimism. 

United Technologies Corp and Eaton Corp raised their full-year earnings forecasts - signaling their confidence in continued demand for their products - this week, sending shares up. Oliver Pursche, the president of Gary Goldberg Financial Services, told Reuters that he projects the manufacturing sector to post solid growth through the end of the year on heightened demand and improving economic conditions. "We think that the rest of the year is going to be very positive," Pursche affirmed.

While some analysts worried that the 9.0-magnitude earthquake and subsequent tsunami that struck Japan on March 11 would cause supply chains to grind to a halt, those concerns were mostly allayed with the newest earnings reports, according to United Tech chief financial officer Greg Hayes. While there have been widespread component shortages emanating from Japanese factories, robust demand from emerging economies like China, India and Brazil mostly offset those losses.

"It seemed inevitable that we needed to raise the guidance because the risks that we saw earlier in the year just don't seem to be materializing," Hayes said in an interview. United Tech raised its full-year profit outlook by 5 cents; that translates into projected growth of about 11 percent to 14 percent. The company expects its full-year sales to reach $56 to $57 billion - the upper tier of its prior forecast range.

Driving the uptick in profits and revenue at U.S. manufacturers is a surge in new business investments, analysts assert. In its report on the U.S. manufacturing sector during the month of March, the Institute for Supply Management said the sector reported growth for the 20th consecutive month, illustrating the impressive expansion that has helped drive an economic recovery.

However, there concerns going into the second half of 2011 that the Japanese crisis could hurt future manufacturing growth as suppliers fail to meet quotas as many factories operate under lowered output. United Technologies said it has adequate supplies now, but that its future growth depends on a sustained supply.

"Right now we have adequate supply; it's just a question of making sure that we continue to have access to that," Hayes asserted. "In the grand scheme of UTC, we don't see any material impact; but I think you'll see bits and drabs over the course of the year."