Earnings season for the September-December quarter of 2018 (or the fourth quarter) is in full swing now, with many big players in the transportation, finance and machinery space having released numbers already.
It’s worth mentioning here that machinery stocks are broadly grouped under Zacks Industrial Products sector.
One of the biggest players in the machinery space — Stanley Black & Decker Inc. (SWK - Free Report) — recently reported in-line results for the September-December quarter of 2018 (or the fourth quarter). Of many, two major machinery companies — Illinois Tool Works Inc. (ITW - Free Report) and Caterpillar Inc. (CAT - Free Report) — in the S&P 500 group will report results in the next week.
Per the latest Earnings Trends report, roughly 8.3% Industrial Products companies released results for the fourth quarter of 2018 till Jan 23. Earnings and revenues increased 7.1% and 6.6% year over year, respectively. Earnings beat was recorded at 50% and for revenues, it was 100%.
In the fourth quarter, earnings are predicted to grow 14.2% while revenues are likely to increase 5.5% for the sector.
Factors to Affect Q4 Results
The fourth quarter was troubling for machinery companies. The companies suffered from increasing costs of production mainly due to tariffs, commodity inflation, higher freight charges and unfavorable movements in foreign currencies. In addition to these, prevalent uncertainties in some foreign nations proved to be deterrents. We would like to add that the recently lowered global economic growth projections by the International Monetary Fund might adversely impact the sector in the quarters ahead.
In the presence of these adversities, we still believe that machinery companies will gain from favorable e-commerce trend, growth opportunities in emerging markets, infrastructural developments and better housing activities. Further, increasing adoption of sophisticated technologies for manufacturing processes will keep demand solid for advanced and innovative machineries.
Guide to Selecting the Right Stocks
Investors looking for options in the machinery space can choose stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Earnings ESP is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. The combination of a favorable ranking and positive ESP points toward stocks with high probability of surpassing estimates in the quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Below we have listed five machinery stocks, with the right combination of elements to post an earnings beat in the fourth quarter:
Colfax Corporation (CFX - Free Report) : The company, with a market capitalization of $2.8 billion, provides products and services related to air and gas handling, and fabrication technology. It serves customers in the power generation, oil, gas and petrochemical, mining, marine, and general industrial end markets.
The company currently carries a Zacks Rank #2 and has an Earnings ESP of +1.43%. The Zacks Consensus Estimate for the quarter has remained unchanged at 63 cents in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Colfax Corporation Price, Consensus and EPS Surprise