U.S. Markets closed

Industrial Stocks' Oct 23 Earnings Roster: CAT, GWW, AVY, PNR

Zacks Equity Research

The earnings season for the Industrial Products sector seems to have gotten off to a decent start. Of the 3.7% of the industry participants that have reported so far, the sector has witnessed an improvement 17.3% in earnings on the back of 6.7% rise in revenues. Per the latest Earnings Trends, total earnings of industrial stocks belonging to the S&P 500 are anticipated to decline 3.9%, while revenues are projected to drop 1.2%. However, the slump is not restricted to this sector, as 10 of the 16 Zacks sectors are expected to log declines this earnings season. However, on a positive note, the Industrial Products sector’s decline is expected to be on the lower side.

Trade tensions with China and waning global demand seems to have taken a toll on the U.S manufacturing sector, which is expected to weigh on the Industrial Products sector’s third-quarter performance. Per the Institute for Supply Management’s latest report, the U.S Purchasing Managers’ Index (PMI) declined to 47.8% in September 2019 — the worst in a decade. This follows readings of 49.1% in August and 51.2% in July.

Industrial production declined 0.4% in September after a 0.8% rise in August and a 0.2% dip in July. Manufacturing production declined 0.5% in September, owing to strike at a major manufacturer of motor vehicles.
 
Given that steel is a primary raw material, every company involved in manufacturing has borne the brunt of rising steel prices thanks to tariffs.
The trend is anticipated to have continued in the third quarter, and consequently get reflected in the bottom line of the sector. Nevertheless, the manufacturing companies are striving to sustain their margins through pricing actions and cost control, increasing productivity and eliminating waste.

It will be interesting to see how some of the industrial companies fare when they release third-quarter 2019 numbers on Oct 23.

Caterpillar Inc. CAT, slated to announce results before market open, is expected to have witnessed decline in earnings and revenues. The Zacks Consensus Estimate for revenues of $13.38 billion, suggests a decline of 0.94% from the year-ago reported figure. Further, the consensus estimate for earnings is $2.83, indicating a decline of 1.05%.

The company has a mixed earnings surprise history. The company has surpassed the Zacks Consensus Estimate in two of the four trailing quarters and missed the other two, the average negative earnings surprise being 4.79%.

Caterpillar Inc. Price and EPS Surprise

 

Caterpillar Inc. Price and EPS Surprise

Caterpillar Inc. price-eps-surprise | Caterpillar Inc. Quote

We cannot conclusively predict an earnings beat for Caterpillar as it doesn’t have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Caterpillar has a Zacks Rank #4 (Sell) and an Earnings ESP of -3.69%.

The contraction in the overall manufacturing sector is anticipated to have impacted Caterpillar’s top-line in the to-be-reported quarter. The Resource Industries segment is likely to have benefited from continued strong demand for aftermarket parts on account of higher machine utilization levels and increased spending by mining companies. However, overall weak construction equipment sales data in North America is anticipated to get reflected in Construction segment’s third-quarter sales. However, higher input costs are likely to have strained margins in the third quarter. Nevertheless, the company’s pricing actions and significant restructuring, and cost reduction initiatives are expected to get reflected on the company’s third-quarter results. (Read more: Caterpillar to Report Q3 Earnings: What's in Store?)

W.W. Grainger, Inc. GWW is slated to announce results before the opening bell. It has a decent earnings surprise history. The company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive earnings surprise being 4.41%.

W.W. Grainger, Inc. Price and EPS Surprise

 

W.W. Grainger, Inc. Price and EPS Surprise

W.W. Grainger, Inc. price-eps-surprise | W.W. Grainger, Inc. Quote

The company’s third-quarter revenues are likely to reflect the increased e-commerce sales. The company is focused on improving end-to-end consumer experience by making investments in e-commerce and digital capabilities, and implementing supply-chain improvement initiatives. Benefits from these factors are anticipated to get reflected in the upcoming quarterly results. However, input-cost inflation, rising freight costs and higher operating expenses thanks to investments in digital marketing capabilities are likely to have affected the company’s third-quarter margins.

The Zacks Consensus Estimate for earnings is pegged at $4.44, suggesting an improvement of 5.97%. The consensus estimate for sales stands at $2.95 billion, indicating growth of 4.17% from the prior-year quarter.

Our proven model predicts an earnings beat for Grainger in the third quarter. This is because the company has an Earnings ESP of +0.53% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avery Dennison Corporation AVY: The company is set to release results before the opening bell. The company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 1.10%.

Avery Dennison Corporation Price and EPS Surprise

 

Avery Dennison Corporation Price and EPS Surprise

Avery Dennison Corporation price-eps-surprise | Avery Dennison Corporation Quote

The company is likely to have benefited from acquisitions, organic growth and strong demand in emerging markets during the third quarter. Further, Avery Dennison’s pricing actions, restructuring activities and execution of strategies are likely to have boosted savings significantly and consequently the bottom line in the third quarter. While the company’s Industrial and Healthcare Materials segment is anticipated to have benefited from the Yongle, Finesse and Mactac acquisitions, a lackluster China automotive market might have affected the segment’s third-quarter top line.

Moreover, completion of restructuring actions associated with the consolidation of the European footprint of its Label and Graphic Materials segment are anticipated to get reflected in the segment’s performance in to-be-reported quarter. The Retail Branding and Information Solutions segment is likely have benefited from its faster-growing high-value product categories, such as specialty labels and Radio-frequency identification. (Read more: What's in the Offing for Avery Dennison's Q3 Earnings?)

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings per share is pegged at $1.60, suggesting growth of 10.3% from the year-ago quarter. The consensus estimates for total sales stands at $1.75 billion, indicating a decline of 0.2% from the year-ago reported quarter.

Avery Dennison currently carries a Zacks Rank of 4 (Sell) and Earnings ESP of -0.63%.

Pentair plc PNR is slated to report results before the market opens. The company has a decent surprise history. Pentair has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 2.52%.

Pentair plc Price and EPS Surprise

 

Pentair plc Price and EPS Surprise

Pentair plc price-eps-surprise | Pentair plc Quote

Wet and cold weather delayed pool construction activity in several of Pentair’s key markets, impacting demand for Pentair so far in 2019. As a result of slower sell-through, inventory levels have built up.  Delayed planting season and weak agricultural sector are likely to have impacted the sale of its agriculture sprayer products. Pentair’s third-quarter revenues are anticipated to reflect these headwinds. However, recent acquisitions are likely to have contributed to growth.

Further, inflation in material and other costs is likely to get reflected in the company’s bottom line in the third quarter. Notably, Pentair has undergone certain business restructuring initiatives aimed at reducing fixed cost structure, which is likely to have negated the impact of higher raw material costs on the third-quarter results. Further, productivity improvement and price hikes implemented to combat higher input costs are also likely to have contributed to third-quarter margin improvement. (Read more: Pentair to Report Q4 Earnings: What's in the Offing?)

The Zacks Consensus Estimate for third-quarter revenues is pegged at $718 million, indicating an improvement of 0.97% from the year-ago quarter. The same for earnings stands at 55 cents, suggesting growth of 1.85% from the prior-year reported figure.

Pentair has an Earnings ESP of -2.14% and a Zacks Rank #3.

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”

Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.50% per year. So be sure to give these hand-picked 7 your immediate attention.

See them now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
Avery Dennison Corporation (AVY) : Free Stock Analysis Report
 
Pentair plc (PNR) : Free Stock Analysis Report
 
W.W. Grainger, Inc. (GWW) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research