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WisBusiness: State Economy Slows in 2nd Quarter
8/18/2006

By Brian E. Clark
WisBusiness.com

Following a national trend, the Wisconsin economy slowed in the most recent quarter, with the average stock price for publicly traded companies off by 2.5 percent.

Still, experts said, there were bright spots, with utilities and some manufacturers doing well from April through June.

“Overall though, it was a down quarter, with the S&P 500 declining by 2 percent, so Wisconsin did a bit worse,” said Todd Parrish, an analyst with R.W. Baird in Milwaukee. Industrials, materials and health care stocks were down, with the technology sector falling by 10 percent. Transportation companies also suffered.

“But utilities were up by 4.7 percent, energy was up by 3.8 percent and consumer staples like food were up 2.3 percent,” he said.

For the Badger State, the Baird index that follows publicly traded companies was down by 2.51 percent, he said.

Parrish blamed rising interest rates, increased energy costs and a fear of inflation for slowing the economy.

“Utilities are a defensive sector,” he said. “People are still turning the lights and you have to eat, even if you have lost your job.”

Parrish said he believes the current quarter will remain “somewhat flattish.”

He predicted the housing market will be weak. But he said interest rates should moderate and inflation worries will cool, which should help stabilize manufacturing stocks.

Chuck Krueger, an associate professor in the executive education program of the UW-Madison Business School, agreed that the economy slowed in the second quarter.

He said interest rates have chilled the housing market and the increased cost of gasoline had caused some consumers to adjust their spending.

“In a sense, the day of reckoning has come with gas,” he said. “It’s been a shock, but it’s not out of line if the price had kept up with inflation.” Moreover, even increased interest rates around not outside of what been considered “normal” levels.

“And we won’t have a housing meltdown here in Wisconsin because things we never really that much out of whack,” he said. “It’s just a rebalancing, with the market improving for buyers.”

Krueger said U.S. automakers and their suppliers are cutting back – not the best news for GM employees in Janesville – but other Wisconsin manufacturers are doing well.

“Companies like Johnson Controls and Manitowoc are doing well because they are diversified or in sectors with strong demand,” he said. “So overall, it’s a mixed bag.”

WINNERS

Alliant Energy - The Madison utility holding company had much higher earnings for the second quarter compared to last year's quarter and raised its earnings estimate for the year. Alliant had profits of $45.4 million for the April-June quarter on revenue of $696.8 million. That was an improvement from the net loss of $58.7 million, caused largely by charges to the company's investments in Brazilian utilities - on revenue of $699.8 million for the 2005 second quarter.

Regal-Beloit - The electrical and air-conditioner markets were strong in the second quarter for this Beloit-based company. The company’s sales more than doubled – thanks to acquisitions - from $177.7 million to $368.8 million. Regal-Beloit had $18.4 million in profits, up from $7.6 million a year earlier. Sales in the company's electrical division increased by about 151 percent, including sales attributed to the acquired business.

Harley Davidson – Sales of the classic American heavyweight motorcycles made by this Milwaukee icon grew 10 percent in the second quarter, easing worries that production reductions might be in the offing. Officials said sales in foreign markets grew at twice the rate of domestic sales. Net income for the quarter grew from $237 million to $243 million from the same period a year ago. Officials said the company is on a pace to grow by 17 percent in 2006 and ship up to 352,000 motorcycles.

Brady Corp. – Strong sales of safety signs, labels and cell phone parts abroad and in the United States pushed profits for the Brady Corp. up 21 percent in the most recent quarter. The Milwaukee company said it had net income rose from $25 million during the period last year to $30.2 million this year. Part of the growth was due to companies it has purchased, but it also had non-acquisition sales growth of 12 percent. Overall, sales increased to $266.5 for the most recent quarter from $209.8 last year.

Johnson Controls – The auto battery and building engineering sectors of this Glendale-based manufacturer had strong sales in the most recent quarter, but the automotive supplier division was down. Johnson Controls said its net income climbed more than 32 percent to $338 million in the most recent quarter, up from $255 million for the same period last year. Overall sales rose 19 percent to $8.39 billion from $7.06 billion. The battery division grew to $886 million – an increase of 33 percent – and net income climbed to $119 million, up 59 percent. Even more impressive were sales in the controls division, which doubled from $1.41 billion to $2.82 billion – thanks in large part to the purchase of the York International air conditioning and heating company. However, sales in the company’s automotive interiors group dropped 6 percent to $4.7 billion and operating income in the unit fell 16 percent to $168 million.

LOSERS

Modine – The rising cost of copper, aluminum, steel and natural gas, as well as demands by customers to reduce prices caused profits to fall more than 20 percent during the most recent quarter. Officials said net income dropped from $20.8 million to $16.4 million. Revenue was up by 8.5 percent, however, rising from $396.8 million to $430.4 million. Officials said the gains came primarily from the heavy duty industrial and truck markets, plus revenue from two acquisitions. The company makes heating and cooling systems for cars, trucks and construction equipment.

Briggs & Stratton Corp. – Disappointing sales to consumers of lawn-and-garden equipment, plus soaring costs for copper and aluminum hurt the globe’s biggest maker of small gas engines during the most recent quarter. Officials said earnings were $15.8 million, down from $50.4 million for the same period a year ago. For the fiscal year, which ended with this quarter, Briggs profit fell 25 percent to $102 million on 4 percent lower sales of $2.5 billion.

Banta Corp. – The company's second-quarter revenue from continuing operations dropped from $366 million in 2005 to $361 million. Earnings from continuing operations were $16.1 million, compared with $14.0 million in last year's second quarter. Of that $16.1 million, however, $3.7 million was the result of a tax reserve reversal. The Menasha-based company also said it is reorganizing its five print divisions into two because of what officials called changing market dynamics.

Renaissance Learning – Net income during the second quarter for this Wisconsin Rapids-based educational products and technology provider was $4.7 million, down 36 percent compared to the $7.3 million it earned the previous year. Net sales increased 3.4 percent to $29.3 million from $28.3 million. Excluding revenue from AlphaSmart Inc., a California technology company acquired in June 2005, sales fell 20 percent for the quarter, the company said. For the first two quarters, net income slumped to $8.2 million, or 27 cents per share, down from $13.8 million, or 45 cents per share, the year before. Officials said they plan to begin phasing out unprofitable product lines.
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