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Industrial Stocks' Jul 31 Earnings Roster: CAT, ITW & BERY

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So far, 44.8% of the S&P participants in the Industrial Products sector have reported second-quarter 2020 results. These companies have logged a decline of 38.8% in earnings, highlighting the slowdown in industrial production amid coronavirus pandemic-hit demand. The sector is anticipated to see a 47.9% decline in second-quarter earnings, per the latest Earnings Trends. However, the slump is not restricted to this sector alone, as 15 of the 16 Zacks sectors are expected to log declines this earnings season, primarily due to the pandemic.

Factors to Note

In the second quarter, industrial production contracted at an annual rate of 42.6% — the largest quarterly decrease since the World War II, per the Federal Reserve. Factory output slumped 47% at an annual rate in the quarter. Also, per the Institute for Supply Management, the Manufacturing Purchasing Managers’ Index (PMI), came in at 41.5% for April and 43.1% in May. A reading below 50 denotes contraction. Even though the index has climbed to 52.6% in June, the manufacturing index averaged 45.7% for the second quarter. These figures clearly indicate that the manufacturing sector has been impacted by the pandemic and energy market volatility in the quarter under review.

Consequently, the sector participants’ second-quarter results are likely to reflect the challenges associated with the pandemic, which include factory closures worldwide owing to restrictions imposed by several governments, supply chain disruptions, and low demand for goods and logistic costs.

Further, capital expenditures in oil & gas, mining and construction are likely to have been restrained. The sector players, which are engaged in packaging for food, medicines, home and personal-care products, might have benefited from higher demand during the pandemic. Meanwhile, many of the sector participants have been focusing on cost cutting measures including reducing discretionary expenses, freezing salary hikes, and lean manufacturing actions to mitigate the impact of weak demand. This may have contributed to margins despite low volumes.

It will be interesting to see how some of the companies belonging to this sector fare when they release quarterly financial numbers on Jul 31.

Caterpillar Inc. (CAT - Free Report) is scheduled to report second-quarter 2020 results before the market opens. The company has surpassed the Zacks Consensus Estimate in one of the four trailing quarters while missing the same in three occasions. It has a trailing four-quarter negative earnings surprise of 3.27%, on average.

Caterpillar Inc. Price and EPS Surprise

A weak manufacturing sector and the impact of the coronavirus pandemic are likely to get reflected in the company’s performance in the to-be-reported quarter.  A lower backlog and the company’s steps to cut production to match lower demand are likely to have weighed on the second-quarter performance. However, the company’s efforts to cut down costs amid a weak demand backdrop might have somewhat negated this impact. (Read more: Caterpillar to Report Q2 Earnings: What's in Store?)

Per the Zacks quantitative model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has a Zacks Rank #3 and an Earnings ESP of -8.53%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Zacks Consensus Estimate for Caterpillar’s second-quarter 2020 earnings is currently pegged at 66 cents, which indicates a decline of 77% from the year-ago quarter. The estimates for earnings have been revised downward by 4% in the past 30 days.

Illinois Tool Works Inc. (ITW - Free Report) is slated to report second-quarter 2020 results before the opening bell. The company has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.95%.

Illinois Tool Works Inc. Price and EPS Surprise

The challenging demand environment caused by the pandemic is anticipated to get reflected in the company’s second-quarter results. Among various businesses, severe damage is expected in automotive OEM (especially in Western Europe and North America). Nevertheless, gains from various cost-saving measures undertaken by the company might have benefited the second-quarter performance. (Read more: Illinois Tool to Report Q2 Earnings: What's in Store?)

The company currently has a Zacks Rank of 3 and an Earnings ESP of +8.23%.

The Zacks Consensus Estimate for the company’s second-quarter earnings has moved up 7% to 72 cents per share over the past 30 days. The figure suggests a decline of 64% from the prior-year reported figure.

Berry Global Group, Inc. (BERY - Free Report) is set to report third-quarter fiscal 2020 results before the market opens. The company has beat estimates thrice in the trailing four quarters, while missing the same once. It has a trailing four-quarter earnings surprise of 6.63%, on average.

Berry Global Group, Inc. Price and EPS Surprise

The buyout of RPC Group Plc has been enhancing Berry Global's prospects in the plastic and recycled packaging industry. The buyout contributed 38.4% and 39.5% to Berry Global’s sales in first and second quarters of fiscal 2020 and is anticipated to have contributed to fiscal third-quarter top line as well. Strong demand across the healthcare, hygiene and grocery end-markets may have benefited the to-be-reported quarter’s performance. However, weakness in the industrial end markets might have dampened these gains in the fiscal third quarter.  Also, higher operating costs are likely to have impacted margins in the quarter.

The company currently has a Zacks Rank #2 and an Earnings ESP of -1.45%.

The Zacks Consensus Estimate for fiscal third-quarter earnings is currently pegged at $1.18, which indicates an improvement of 31% from the prior-year quarter. Notably, the estimates has moved up 1% in the past 30 days.

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Caterpillar Inc. (CAT) - free report >>

Illinois Tool Works Inc. (ITW) - free report >>

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