Machinery Stocks' Apr 24 Earnings Roster: CAT, IRBT & More

Zacks Equity Research Published on April 23, 2018

The Q1 earnings season has kicked off on an impressive note, with total earnings for the 87 S&P 500 members that have released results so far, surging 25% year over year on 11.7% higher revenues, per the latest Earnings Trends report. It is noteworthy that of this, 62.1% of the companies have surpassed both EPS and revenue estimates.

The picture ahead is encouraging too. Taking into account the rest of the S&P 500 members that are yet to report, total earnings for the S&P 500 index is expected to be up 18.3% for this earnings season on the back of a 7.7% rise in revenues. If this materializes, it would surpass fourth-quarter 2017 results where the S&P 500 recorded 13.4% earnings growth on 8.6% revenue growth — the best quarterly performance in more than six years.

Industrial Sector Back on Track

The Industrial Products sector, currently placed at the top 6% out of the 16 Zacks sectors, is one of the sectors which are expected to record double-digit earnings growth, mainly driven by the U.S. tax reform. According to our latest projections, the sector is anticipated to log an earnings growth of 25.8% in first-quarter 2018 on the back of 12.8% rise in revenues.

After being straddled by soft commodity prices, reduced investment in the energy sector, dismal economic conditions in some developed and developing nations in the last few years, the Industrial Products sector seems to have regained its footing last year. The turnaround in its performance is primarily due to increased infrastructure spending and other growth-friendly policies of the new administration. Rise in manufacturing and mining activity also played a crucial role.

Upbeat Data Instils Confidence

Industrial production is one of the leading economic indicators for industrial stocks. For first-quarter 2018, industrial production — a measure of output at factories, mines and utilities — rose at an annual rate of 4.5%.

Further, the U.S Architecture Billings Index (“ABI”), an economic indicator that provides an approximately nine-to-12 month glimpse into the future of non-residential construction spending activity, was 51 in March — increasing for the sixth straight month. Notably, any score more than 50 indicates billings growth and reflects a healthy business environment.

Per the latest report of the Institute for Supply Management (“ISM”), Purchasing Managers Index ("PMI”) was 59.3% in March. This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories. A reading above 50% indicates that the manufacturing economy is generally expanding. New orders index is at 61.9, remaining at or above 60 for the 11th straight month. Of the 18 manufacturing industries, 17 industries reported growth in March. The only exception being Apparel, Leather & Allied Products.

It will be interesting to see how some of the machinery stocks fare when they release first-quarter 2018 numbers on Apr 24.

Being the world's largest manufacturer of construction and mining equipment Caterpillar, Inc. (CAT - Free Report) , is one heavyweight that hogs the limelight in the industrial product sector. The company ended 2017 on a high, delivering year-over-year improvement in both the top and bottom lines thanks to its incessant efforts to cut down costs, improvement in construction sector and pickup in Resource Industries. Consequently, all eyes will be on the behemoth to see if the company can repeat the feat when it reports earnings before the opening bell.

Caterpillar has an impressive earnings surprise history beating estimates in the trailing four quarters. The company has a positive average surprise of 51.65%.

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