Back to top

Key Predictions for Q3 Earnings Reports of CAT, PNR & SWK

Read MoreHide Full Article

The third-quarter earnings season has gathered steam with 87 members of the S&P 500 Index having reported their quarterly numbers, which make up 24.7% of the index’s total market capitalization. Per the latest status as of Oct 20, these companies have put a 9.4% increase in earnings on the back of 7.3% higher sales on the scoreboard. Around 71.3% of these companies delivered positive earnings surprises while 70.1% surpassed revenue expectations. (Read more: Three Takeaways from the Q3 Earnings Season)

This week is going to be a busy one with more than 700 companies in queue to release results, including 180 S&P 500 members. Taking into account all the S&P members that are yet to disclose their numbers, total earnings for the index are expected to be up 2.6% year over year on a 5% increase in revenues in the third quarter. Though this is a deceleration from an 11.2% increase in earnings in the second quarter and 13.6% in the first, growth graph will pick up from the fourth quarter onwards. Per projections, earnings growth will be 9.3% in fourth-quarter 2017, 9.3% in first-quarter 2018, 9.1% in the second and 12.6% in the third quarter of 2018.

The industrial products sector, one of the 16 Zacks sectors, is expected to log growth of 9.2% in third-quarter earnings while revenues will rise 2.9%. It is one of the seven sectors that is anticipated to log positive growth this quarter.

In this write-up, we take a sneak peek into three industrial products stocks that are slated to report their third-quarter results on Oct 24.

One heavyweight that hogs the limelight in the sector is Caterpillar, Inc. (CAT - Free Report) , the world's largest manufacturer of construction and mining equipment. The company will report financial results before the market opens. Caterpillar’s both top and bottom line had improved on a year-over-year basis in the last reported quarter primarily owing to the cost saving activities.

Our proven model shows that the company is likely to beat estimates this quarter. The company has an Earnings ESP of +1.27% as the Most Accurate estimate is $1.24 while the Zacks Consensus Estimate is pegged lower at $1.22. The stock carries a Zacks Rank #2 (Buy), which combined with a positive ESP makes us confident of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company’s earnings have surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 41.4%.

Caterpillar, Inc. Price and EPS Surprise

Caterpillar, Inc. Price and EPS Surprise | Caterpillar, Inc. Quote

Per the Zacks Consensus Estimate, the Machinery, Energy & Transportation segment, which contributed approximately 94% of total revenues in second-quarter 2017, is expected to post sales of $9.7 billion in the third quarter. This reflects year-over-year growth of 15%. The Zacks Consensus Estimate for total sales of $10.6 billion indicates a 15.8% growth from the prior-year quarter.

The construction sector has been trending lately as evident from its leading indicators. Construction sales in both North America and Latin America will increase 12% and 25%, respectively in the to-be-reported quarter. Construction sales in Asia Pacific will surge on the back of increased infrastructure and residential investment in China. Sales will remain flat in Construction-EAME segment.

Per the Zacks Consensus Estimate, Resource Industries is also anticipated to witness expansion in the third quarter with 30% growth projected for both Asia Pacific and EAME. Latin America and North America will also log growth of 18% and 15%, respectively.

In the third quarter, revenue growth along with cost reduction driven by the company’s continuous efforts will lead to an improved bottom line as well. The Zacks Consensus Estimate for Profit before Taxes for the Machinery, Energy & Transportation segment is at $538 million, projecting an impressive 166% year-over-year growth. The Zacks Consensus Estimate for earnings for the third quarter of $1.22 reflects an improvement of 43.8% on a year-over-year basis. (Read more: Caterpillar Q3 Earnings: Another Beat in the Offing?)

Diversified industrial manufacturing company Pentair plc (PNR - Free Report) will report quarterly numbers before the opening bell. In the second quarter, Pentair’s earnings improved on a year-over-year basis while revenues declined.

The company’s earnings have surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 5.07%.

Pentair PLC. Price and EPS Surprise

Pentair PLC. Price and EPS Surprise | Pentair PLC. Quote

The combination of Pentair’s Earnings ESP of 0.00% and Zacks Rank #3 (Hold) and makes earnings prediction difficult. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pentair anticipates adjusted core sales to grow approximately 4% for the third quarter. According to our latest consensus estimates, the company is projected to post revenues of $1.22 billion in the third quarter, reflecting year-over-year growth of 1.1%.

Pentair’s Water segment, which generates around 60% of the company’s revenues, will grow on improving end-market demand in the municipal water market. Further, buoyancy in the Residential and Irrigation business will drive the segment’s growth in the quarter to be reported despite weakness prevalent in the Engineered Pump business. Our consensus estimates indicate that net sales of Pentair’s Water segment will reach $684 million in the quarter.

Mid-single digit growth witnessed in the Industrial business for two straight quarters drove sales growth in the Electrical segment in the second quarter. This momentum is expected to carry into the third quarter as well. The Zacks Consensus Estimate for sales for the Electrical segment is pegged at $542 million for the third quarter.

Moreover, Pentair’s pricing actions will help mitigate higher inflation. The Zacks Consensus Estimate for earnings of 93 cents reflects a 19% year-over-year growth and is at the higher end of the Pentair’s third-quarter guidance range of 91-93 cents. (Read more: Can Pentair Beat Q3 Earnings on Segmental Growth?)

Stanley Black & Decker, Inc. (SWK - Free Report) provides tools and storage, commercial electronic security, and engineered fastening systems worldwide. The company is slated to report financial numbers before the opening bell. In the second quarter, the company reported improvement in revenues and earnings.

Stanley Black & Decker, Inc. Price and EPS Surprise

Stanley Black & Decker, Inc. Price and EPS Surprise
| Stanley Black & Decker, Inc. Quote

In the past four quarters, the company delivered better-than-expected results, with an average positive earnings surprise of 4.27%.

Our proven model shows that Stanley Black & Decker is likely to pull off a surprise this quarter. Stanley Black & Decker has an ESP of +0.63%, with the Most Accurate estimate of $1.88 is pegged higher than the Zacks Consensus Estimate of $1.87. The company’s Zacks Rank #2 and positive ESP makes us reasonably confident of an earnings beat.

Growth prospects seem impressive for Stanley Black & Decker’s Tools & Storage segment, as evident from mid-single digit organic revenue growth expected in the year. The segmental results will get a boost from wide acceptance of DeWalt FlexVolt product, and synergistic benefits from Newell Tools and Craftsman buyouts. Third-quarter sales estimates are $2,228 million, a 17% improvement year over year.

Stanley Black & Decker anticipates earnings in the third quarter to be roughly 25-26% (average is 25.5%) of the expected range for 2017. Considering the projected adjusted earnings per share range of $7.18-$7.38, we believe that earnings in the third quarter is likely to be within $1.80-$1.92 per share (mid-point is $1.86), way above $1.68 recorded in the year-ago quarter. The Zacks Consensus Estimate for earnings is pegged at $1.87.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research. It's not the one you think. See This Ticker Free >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Stanley Black & Decker, Inc. (SWK) - free report >>

Caterpillar, Inc. (CAT) - free report >>

Pentair PLC. (PNR) - free report >>

More from Zacks Analyst Blog

You May Like