Transformer troubles weigh down SPX Corp shares

BOSTON (Reuters) - Concerns about persistently low selling prices for electric transformers weighed down shares of SPX Corp , overshadowing the diversified U.S. manufacturer's better-then-expected fourth-quarter results.

Transformer prices fell sharply along with demand during the recession as U.S. utilities put off major capital equipment services, and the unit has lagged the broader economic recovery.

"The question everybody is trying to figure out is when ... do the prices firm, not in line with higher raw materials but jump back to their former highs of late 2004 and 2007?" said Nick Heymann, industrials analyst at Sterne Agee & Leach. "That is probably six to nine months out."

SPX shares, which on Monday hit their highest point since the fall of 2008, were down $2.22 or 2.6 percent at $82.98 on the New York Stock Exchange in midday trading.

Rising prices of raw materials, particularly steel, threaten to further pinch SPX results later in the year, said analyst Brian Langenberg of Langenberg & Co.

"That is a serious concern given the jump in steel prices," he said.

PROFIT TOPS STREET VIEW

The company, which also makes fluid-handling equipment used in food and beverage production and cooling towers for power plants, said on Thursday that fourth-quarter net profit came to $65.3 million, or $1.29 per share. A year earlier, it reported a net loss of $72.1 million, or $1.46 per share, after a large noncash charge to write off goodwill at its car-tools unit.

Factoring out a tax settlement, earnings came to $1.13 per share, topping analysts' average forecast of $1.09, according to Thomson Reuters I/B/E/S.

Revenue rose to $1.33 billion from $1.32 billion but missed analysts' expectations of $1.36 billion.

CHINA ORDERS SLOWING

The Charlotte, North Carolina-based company is facing a slowdown in China as authorities in Beijing pull back investment on coal-fired power plants. SPX had seen its sales of cooling towers climb in recent years on strong Chinese demand.

"There was government stimulus support to increase the build-out of (coal-fired power plants), and in 2008 and 2009 we saw some very robust order years. We've now seen a pause in that," SPX Chief Executive Chris Kearney said in an interview.

But he said the company expects the slowdown in China to be offset by stronger growth in India.

"Other developing markets are going to be at least as significant as China," Kearney said.

SPX held steady the 2011 profit forecast it issued last month, which calls for growth of about 20 percent to a range of $4.20 per share to $4.50 per share from continuing operations.

SPX's competitors include German engineering group GEA Group AG , U.S. conglomerate General Electric Co , Swiss engineering company ABB Ltd and U.S. automotive toolmaker Snap-on Inc .

Shares of SPX rose strongly ahead of its earnings report. Their 14 percent gain over the past month was about double the 7 percent rise in the Standard & Poor's capital goods industry index .

(Reporting by Scott Malone; Editing by Gerald E. McCormick and John Wallace)