U.S. industrials stare at profit squeeze from excess inventory, weak demand

By Aishwarya Nair

(Reuters) - U.S. manufacturers are likely to see a hit to their quarterly profit in the second half of the year as higher prices for everything from light bulbs to air conditioners take a toll on consumer spending.

Wall Street analysts fear the second quarter would be the last three months of a good spell that began during the pandemic as consumers used stimulus checks to buy products of 3M Co, Emerson Electric Co, Eaton Corporation Plc and Johnson Controls.

GRAPHIC: Pandemic profits (https://graphics.reuters.com/USA-INDUSTRIALS/lgpdwzebovo/chart.png)

High inventory levels combined with sluggish order growth are likely to hurt manufacturers' revenue as analysts foresee a further slowdown in demand.

"Electrical orders momentum is likely to slow sharply, which is a risk that is under-appreciated by investors," brokerage firm Barclays said.

THE CONTEXT

The U.S. manufacturing and trade inventories rose 17.7% year-over-year to $2.38 billion in May, the U.S. Census Bureau data showed https://bit.ly/3cvGI4k, while the manufacturing activity slowed more than expected in June.

In its latest quarterly report, industrial products maker Dover Corp said bookings dropped 33% for its unit that serves commercial refrigeration, heating and cooling markets from a year earlier.

"We've been guiding for a year now that this can't go on forever and orders are going to come down," its Chief Executive Richard Tobin told analysts.

Dover's peer 3M, which generates 17% of its revenue from the consumer segment, is set to report its results tomorrow.

GRAPHIC: Performance of Industrial stocks (https://graphics.reuters.com/USA-INDUSTRIALS/myvmnlwrwpr/Industrials.PNG)

FUNDAMENTALS

* Analysts estimate 3M's Q2 revenue to fall 4.2% to $8.57 billion when it reports results on July 26

* Earnings per share is estimated at $2.22

* The stock has lost about 27.4% of its value this year

* For Emerson, analysts estimate Q3 revenue to grow 8.8% to $5.11 billion

* Earnings per share is estimated at $1.06

* The stock has lost about 14.6% of its value this year +

* Eaton's Q2 revenue is expected to fall 0.19% to $5.21 billion

* Earnings per share is estimated at $1.61

* The stock has lost about 26.6% of its value this year

WALL STREET SENTIMENT

For MMM, 1 out of 23 analysts rate the stock "buy", while 15 have a "hold" rating and 7 rate the stock "sell" or lower. The median price target is $144.

For EMR, 16 out of 27 analysts rate the stock "buy" or higher, while 11 have a "hold" rating. The median price target is $97.

For ETN,

17 out of 26 analysts rate the stock "buy" or higher, while 8 have a "hold" rating and one "sell" rating. The median price target is $154.

For JCI, 18 out of 24 analysts rate the stock "buy" or higher, while 6 have a "hold" rating. The median price target is $62.

(Reporting by Aishwarya Nair in Bengaluru; Editing by Arun Koyyur)