The Machinery industry, which is broadly grouped under the industrial products sector (one of the 16 broad Zacks sectors), had logged growth of 28.5% in first-quarter 2017. For second-quarter 2017, the sector is expected to deliver growth of 14.2% in earnings on the back of 12.9% increase in revenues. (Read more: Four Takeaways from the Q2 Earnings Season)
Looking at the broader picture, of the 97 S&P 500 members that have reported across all sectors, constituting 28.1% of the Index’s total market capitalization, earnings has gone up 8.4% for the second quarter. Considering all the companies that are yet to report, the S&P 500 is expected to register 8.6% growth in the quarter.
Industrial production is one of the leading economic indicators for the industrial stocks. For first-quarter 2017, industrial production – a measure of output at factories, mines and utilities, rose at an annual rate of 1.5 %. The momentum continues in the second quarter with U.S. industrial production logging growth of 0.8% in April compared with March, followed by 0.1% in May. Industrial production rose 0.4% in June, marking its fifth consecutive monthly increase. For the second quarter as a whole, industrial production rose at an annual rate of 4.7%, driven by strong increases in mining and utilities.
It will be interesting to see how some of the machinery stocks fare when they release second-quarter 2017 numbers on Jul 25. Apart from beats and misses, focus will also be on their outlook.
Being the world's largest manufacturer of construction and mining equipment Caterpillar, Inc. (NYSE:CAT) , is one heavyweight that hogs the limelight in the industrial product sector. Caterpillar has begun 2017 on a positive note, delivering year-over-year improvement in both the top line and bottom line for the first time in 10 quarters. The better-than-expected results came on the back of its incessant efforts to cut down costs to counter the impact of low-end user demand across many of its businesses. Thus, all eyes will be on the behemoth whether it can repeat the feat when it reports earnings before the opening bell.
Caterpillar has an impressive earnings surprise history beating estimates in the trailing four quarters. The company has a positive average surprise of 40.25%.
Caterpillar, Inc. Price and EPS Surprise
Caterpillar, Inc. Price and EPS Surprise | Caterpillar, Inc. Quote
The company will benefit from improved backlog and recent pick up in construction-related activity. Further, its cost savings from recent enhanced restructuring actions will boost margins.
Our proven model shows that Caterpillar is likely to beat earnings this quarter. This is because the company has the right combination of two key ingredients – a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Caterpillar currently carries a Zacks Rank #2 and an Earnings ESP of +2.38%. (Read more: Will Caterpillar Retain Positive Earnings Streak in Q2?)
Pentair plc (NYSE:PNR) is also scheduled to report second-quarter results before the opening bell. In the first quarter, Pentair’s earnings improved 7% on a year-over-year basis despite a 1% dip in revenues.
Pentair has consecutive earnings beats in the four trailing quarters with an average positive earnings surprise of 5.29%.
Pentair PLC. Price and EPS Surprise
Pentair PLC. Price and EPS Surprise | Pentair PLC. Quote
Strengthening of the U.S. dollar, material and other cost inflation and lower oil prices remain headwinds for second-quarter performance. However, Pentair's focus on price increases will help mitigate cost inflation. The company also continues to record sound growth in the biogas business, which showed signs of strengthening driven by the Union Engineering acquisition. In addition, Pentair’s Aquatic & Environmental Systems business is poised to grow on industry strength, constant dealer wins and strategic product innovations.
Pentair currently carries a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult. (Read more: Pentair to Report Q2 Earnings: Is a Beat in Store?)
Idex Corporation (NYSE:IEX) is scheduled to report second-quarter 2017 results after the market closes. In the last reported quarter, the company reported increase in both the top line and bottom line.
The company has outpaced the Zacks Consensus Estimate in the preceding four quarters, an average positive earnings surprise of 5.11%.
IDEX Corporation Price and EPS Surprise
IDEX Corporation Price and EPS Surprise | IDEX Corporation Quote
With a flexible yet disciplined focus on cost and productivity, the company expects to successfully tap newer markets to continuously boost its revenue. Further, IDEX intends to optimize cost structure, increase competitiveness and reallocate resources to improve profit.
The combination of Idex’s Zacks Rank #2 and Earnings ESP of 0.00% makes earnings prediction difficult.
Lincoln Electric Holdings Inc. (NASDAQ:LECO) will also report second-quarter results before the market opens. In the last reported quarter, the company registered year-over-year increase in both revenues and earnings.
The company outpaced the Zacks Consensus Estimate in three the last four quarters while coming in line in one. The average positive surprise was 4.66%.
Lincoln Electric Holdings, Inc. Price and EPS Surprise
Lincoln Electric Holdings, Inc. (LECO): Free Stock Analysis Report
Caterpillar, Inc. (CAT): Free Stock Analysis Report
IDEX Corporation (IEX): Free Stock Analysis Report
Pentair PLC. (PNR): Free Stock Analysis Report
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