By Kate Gibson
In looking at the second-quarter earnings season, U.S. stock
market analysts anticipate year-over-year earnings for the
industrial complex to plunge about 43%, with the sector expected to
be among the top four worst performers.
"That low bar that has been set makes it easier for companies
like Caterpillar Inc. and Deere & Co. to beat expectations,"
said Art Hogan, chief market strategist, Jefferies & Co.
On Tuesday, shares of Caterpillar (CAT) were lately up 5.5%
after the heavy equipment maker reported results topping
expectations. .
Deere (DE) gained 1.4%.
And, Caterpillar fronted what proved to be limited gains on the
Dow Jones Industrial Average (DJI), which erased a 70-point rise to
recently churn 5.74 points lower, to 8,842.41. The S&P 500
(SPX) fell 4.91 points to 946.22, while the Nasdaq Composite (RIXF)
declined 11.88 points to 1,897.41.
"It's interesting to note that after Caterpillar significantly
beat forecasts, they see full-year sales of $32 to $36 billion
despite a high degree of uncertainty on global economy. They were
able to get there with a combination of cost cutting, by laying off
50,000 people, to get close to demand on products," said Hogan.
Rising about 24% in the past five sessions, shares of
Caterpillar are trading near $40, nearly doubling from its March
lows but still off 11.5% year-to-date.
Driven
Another analyst believes the resumption of auto production at
the post-bankruptcy Chrysler and General Motors Corp. (MTLQQ)
should give industrial production a sizeable bounce in the third
quarter. "This is highly unusual, as third-quarter summer vacations
usually makes this period the slowest of the year," said Nicolas
Colas, chief market strategist, BNY ConvergEx Group.
"Through their bankruptcy proceedings, both companies stopped
manufacturing vehicles. Vehicle production at Chrysler,
year-to-date, is down 70%, or almost 700,000 units, from year-ago
levels. GM production is down 54%, or almost 1 million units, from
last year. Now that both companies are out of bankruptcy, they will
be restarting production in their third quarter," Colas said.
Quarterly earnings commentary last week from companies including
industrial suppliers W.W. Grainger Inc. (GWW) and Fastenal Co.
(FAST) pointed to the resumption of auto production as "a near-term
positive for their businesses," said Colas. . .
"The pickup in light vehicle production will provide some reason
for industrial companies to recall workers. Such recalls do not
typically happen in the third quarter, due to summer vacationing.
The unexpected pickup in demand will likely surprise economists,
but these companies are already anticipating it," he said.