Trader Talk

Where Is Top-Line Growth for 2013?

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Earnings: Strength in big multinationals.

Finally. We are getting past financials and into the heart of earnings season, to the companies I love: industrial multinationals.

Four of them reported this morning: General Electric, Johnson Controls, Parket Hannifin, and Rockwell Collins.

All four beat on top line and bottom line.

Two of them — Parker Hannifin and Rockwell Collins — are at 52-week highs.

Multi-industry companies are important indicators of the global economy. They work in many different businesses ... autos, aerospace, housing, commercial real estate, etc. They make the stuff that is behind the walls of your house, the panels of your car, the skin of the plane you're flying in. They operate in dozens of countries.

General Electric's CFO Keith Sherin emphasized the growth from China: Strong back orders in the aviation division, and growth in the health-care and power and water divisions due to strong demand from that country.

The expectation of growth in the second half of the year was indirectly referenced by several companies. Johnson Controls' CEO Stephen Roell said, "We expect earnings in the first half of fiscal 2013 to be significantly lower than 2012," but then added, "we continue to have confidence in our full-year guidance for higher revenues and earnings in fiscal 2013." Johnson is big in heating and air conditioning, and building management systems, and interiors for autos, as well as car batteries.

One theme that is emerging: In the absence of clear top-line growth, companies are emphasizing what they can control — costs and capital expenditures.

Rockwell Collins CEO Clay Jones sounded an optimistic note: "We are increasingly confident that we can meet or exceed our financial expectations," but only because of cost-cutting and cautious capital deployment. It is a leader in aviation electronics for commercial and military customers.

Parker Hannifin's CEO Don Washkewicz talked very little about growth, emphasizing "cost-reduction initiatives and adjustments to planned capital expenditures." It makes filters and hydraulic components for machinery, flight-control systems for planes, and other aircraft components, as well as refrigeration and air conditioning systems.


1) Big moves in Asian stocks overnight: Gross domestic product of 7.9 percent in the fourth quarter was better than expected ... a recent improvement in industrial output and retail sales has many convinced that China has clearly bottomed. Still, overall growth in China in 2012 was at its lowest level since 1999. Japan posted its biggest daily gain in 22 months.

2) Not a fluke? For the second week in a row, money has come back into stock mutual funds, according to Lipper. The sum — $3.7 billion — was healthy, but combined with the prior week we have had a two-week inflow of roughly $11.3 billion, the biggest two-week move since April 2000. Oddly, equity exchange-traded funds saw outflows of $3.5 billion ... the first time we have seen outflows since the end of November 2012.

Speaking of stocks, it has been a decent week for global indices:

China (Shanghai) 3.30%
Hong Kong 1.45%
Japan 1.03%
Brazil 1.15%
S&P 500 0.60%
Germany 0.10%
Spain -0.41%

3) Good week for initial public offerings: Norwegian Cruise Lines (NCLH), the third-largest cruise operator in North America, priced 23.5 million shares at $19 a share, above the price talk of $16 to $18 a share. It is owned by private-equity firms Apollo and TPG, as well as Asian cruise and gaming company Genting HK, and was taken private in 2008.

The third of three master limited partnerships (MLPs) priced last night: SunCoke Energy Partners (SXCP), which owns cokemaking facilities to aid in steel production, priced 13.5 million shares at $19 a share, at the low end of the price talk of $19 to $21 a share. The yield (8.25 percent) is what is attractive for these MLPs.