After encountering a difficult 2015 and a similarly tough first-half 2016, the scenario for the Machinery industry seems to be improving at last. The industry, which is broadly grouped under the Industrial Products sector (one of the 16 broad Zacks sectors) suffered a 21% plunge in earnings in first-quarter 2016 and a then a 1% dip in the second quarter. Going by our projected growth of a 7% increase in earnings for the sector, the growth graph will finally enter the positive territory in the third quarter.
So far 82.6% of the companies in the sector reported their numbers exhibiting a 3.9% dip in earnings for the quarter. With the curtains for the third quarter yet to fall, the growth graph is likely to pick up eventually.
Looking at the bigger picture of the yet-to-report 136 companies, total S&P 500 earnings are expected to rise 2.4% while revenues will rise 1.4%. Even though the growth rate seems meager at this moment, the positive growth is indeed an improvement from the back-to-back declines for five quarters. (Read more: Positive Earnings Growth in Q3)
As per the Federal Reserve, industrial output edged up 0.1% in September after a 0.5% dip in August. The improvement was driven by a 0.2% rise in manufacturing output, which in turn was bolstered by the production of goods such as textiles and plastics. In the third quarter, industrial production rose at an annual rate of 1.8% - the first quarterly increase since third-quarter 2015. Manufacturing output moved up at an annual rate of 0.9% in the third quarter.
The industrial sector has been affected by a strong dollar and an oil price slump. Further, efforts to reduce an inventory overhang led to fewer orders being placed with factories. However, with the dollar's rally fading and oil prices stabilizing, the worst of the industrial downturn seems to be over.
It will be interesting to see how some of the machinery stocks fare when they release their numbers on Nov 7. Apart from beats and misses, focus will also be on their outlook.
Rockwell Automation Inc. (ROK - Free Report) provides industrial automation power, control and information solutions. The company is slated to announce its fiscal fourth-quarter 2016 results before the opening bell.
In the third quarter, Rockwell Automation’s top and bottom line plunged year over year. While the earnings per share beat the Zacks Consensus Estimate, revenues fell short.
In the last reported quarter, the company posted a positive earnings surprise of 6.16%. The stock beat estimates in three of the last four quarters with a positive average surprise of 2.34%.
ROCKWELL AUTOMT Price and EPS Surprise