By Scott Malone
BOSTON (Reuters) - "Forget about where you've been. Tell us where you're going."
That's the message from investors to big U.S. manufacturers ahead of a wave of earnings reports over the next few weeks. They will be far less interested in hearing how the third quarter went than what companies expect next year to be like and how they are preparing for it.
While early earnings reports from big companies including Alcoa Inc and JPMorgan Chase & Co disappointed investors, analysts are still expecting the industrial sector to chalk up solid third-quarter profit growth of 15.2 percent across the sector, above the 12.5 percent forecast for the full Standard & Poor's 500 index.
Chief executives are likely to push back on questions about their 2012 outlooks -- big companies including General Electric Co, United Technologies Corp and Honeywell International Inc typically wait until December to discuss their forecast for the next year. But some investors say the European debt crisis and signs of slowing demand will make them eager for an earlier update.
The memory of the sharp downturn following the late 2008 credit crunch is still fresh in their minds.
"Are managements going to retrench as quickly and as deeply in the event of a credit moment in Europe or China as they did last time around?" said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio. "What we want to hear is a dose of reality. What are you planning, what's your contingency, what are you actually seeing?"
This comes as CEOs of many big U.S. companies say orders are holding up, and one of the main risks they see is that customers will start holding off on orders out of fear that something might happen to hurt the economy.
"There is just not enough certainty and in some ways the most important thing we can do right now is social and it has to do with rebuilding confidence," GE CEO Jeff Immelt told a group of executives from mid-sized U.S. companies in Columbus, Ohio last week.
Immelt is due to speak at a Thomson Reuters Newsmaker event in New York on Monday.
GOOD NEWS, BAD NEWS
Heading into the reporting season, not every company has offered a positive view of how the third quarter went.
Ingersoll Rand Plc fired a warning shot, saying that profit could be down for the quarter, as demand for heating and cooling equipment that it had earlier expected in North America failed to materialize.
But Honeywell confirmed its outlook, saying it expected to come in at the high end of its forecast on strong demand for turbochargers and automation and control equipment.
Several factors are working in big manufacturers' favor: One is that the price of a wide range of metals have fallen, easing pressure on profit margins. The price of copper, particularly important as it used for all sorts of wiring, fell by 25 percent in the third quarter.
Another is that many big industrials, including GE, United Technologies and ITT Corp now generate a significant portion of their revenue from maintenance of the products they sell, and that business tends to hold up even when new-equipment sales fall.
But the risks are also clear. With growth at home sagging, U.S. multinationals have been counting on foreign demand to drive results. Europe's economies are being rocked by a sovereign-debt crisis and China is showing signs of slowing.
Analysts, on average, have forecast slower growth for big manufacturers in the third quarter versus the first half of the year, according to Thomson Reuters I/B/E/S.
Among blue-chip names, for GE, they look for earnings to rise 10.7 percent; for United Technologies they see 11.5 percent; for Caterpillar Inc 27 percent, and for 3M Co 5 percent.
In addition, some investors say Wall Street's worries may have gotten ahead of reality. The S&P capital goods index has fallen some 14 percent over the past six months, a steeper slide than the 8 percent decline of the broad S&P 500.
"We don't believe there's going to be a double dip. We do believe we're in a slow recovery, but this market is behaving like it's got bipolar disorder," said Scott Schermerhorn, portfolio manager with Granite Investment Advisors Inc in Concord, New Hampshire, which manages about $500 million in investments and is currently underweight in the industrial sector.
"The reason we scaled back on industrials was they were ahead of themselves," Schermerhorn said. "Now we view industrials as attractive again and we're actively looking in that space."
(Additional reporting by Nick Zieminski in New York; Editing by Steve Orlofsky)