By Kate Gibson
In looking at the second-quarter earnings season, U.S.
stock-market analysts anticipate year-over-year results for the
industrial complex to plunge about 43%, with the sector expected to
be among the top four worst performers.
"As we look at second-quarter earnings season, there are four
groups we assume will do the worst: materials, energy, financials
and industrials. 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 at Jefferies
& Co.
On Tuesday, shares of Caterpillar (CAT) closed 7.7% higher after
the heavy-equipment maker reported second-quarter results and
boosted its full-year outlook. .
Deere (DE) gained 1.8%.
Caterpillar paced gains on the Dow Jones Industrial Average
(DJI), which forfeited a nearly 80-point rise before reassembling
nearly all of that advance as the closing bell neared, finishing up
about 68 points. The S&P 500 (SPX) edged higher by 3.5 points,
while the Nasdaq Composite (RIXF) rose almost 7 points, extending
its winning streak to 10 sessions.
"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 have nearly doubled the levels seen at the market's
March low -- but the stock remains off about 12% this year.
Drive time
Another analyst believes the resumption of production at
post-bankruptcy Chrysler and General Motors Corp. (MTLQQ) should
give industrial production a sizable 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 at 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. and .
"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.