Recession fears are prevalent. Manufacturing indexes, for instance, are showing no growth, or worse. What’s more, the Dow Jones Industrial Average (.DJI) has dropped for three straight weeks and seven out of the last 10. Investor angst is palpable. Perhaps earnings can save the market.
As earnings reports roll in, here are five industrial companies investors can watch to divine the health of the global economy: Fastenal (FAST), Honeywell (HON), Caterpillar (CAT), Cognex (CGNX) and Emerson Electric (EMR).
Industrial distributor Fastenal is the ultimate “short-cycle” company—selling thousands of small products to thousands of business customers across various industries. The company is a good real-time gauge regarding overall demand and customer sentiment.
Things, however, might not look so rosy when Fastenal reports numbers Oct. 11. Management noted on the company’s second-quarter conference call the business environment was “a little bit more challenging,” in part, because of tariffs and their negative impact on profit margins.
What’s more, Baird research analyst Dave Manthey recently conducted a survey of more than 500 distribution businesses with more than $100 billion in annual sales. His preliminary data shows demand “downshifting.” That’s not a great data point for industrial investors.
Wall Street expect 36 cents in per-share earnings from $1.4 billion in sales.
Industrial conglomerate Honeywell is—essentially—the largest industrial company on the planet by market capitalization. It gives investors a look into several end markets including: aerospace, energy, logistics, and commercial construction.
Aerospace is the company’s largest division and aerospace is one of the best-performing industrial end markets these days. Suppliers Barron’s tracks are up about 30% year to date, better than the gain of the overall market. More people on more planes is driving demand for new commercial aircraft as well as demand for aftermarket parts and service.
Honeywell reported second-quarter aerospace sales up 11% on a comparable basis. Another quarter with growth like that would be welcomed by nervous investors worried about the economy.
Wall Street expects the company to report $2.01 in per-share earnings from $9.1 billion in sales when it announces results on Oct. 17.
Honeywell doesn’t have much automotive exposure, after spinning out turbocharger maker Garrett Motion (GTX) in 2018. Still, cars are a huge industrial end market, which is one reason investors should tune into the Cognex earnings report.
Cognex makes advanced vision and guidance systems that help auto makers assemble cars. Automotive exposure is one reason Wall Street is cautious on Cognex stock. Goldman Sachs analyst Joe Ritchie says Sell, in part, because capital spending among auto makers is falling. Gordon Haskett analyst John Inch isn’t as negative as Ritchie. He says Hold and has concerns about Chinese exposure.
Some of the Cognex China business is for the electronics market. The company, for instance, helps contract manufacturers assemble smartphones faster. What’s more, electronics, like cars, is a multitrillion-dollar end market driving a lot of economic activity. Cognex management reported lower spending by electronics customers in July. Investors will hope the tide turns when management looks to the year ahead.
Wall Street expect the company to earn 28 cents a share from $178 million in sales when it reports earnings Oct. 29.
China is also a big deal for Caterpillar. About 5% to 10% of total company sales at Caterpillar are derived from the Middle Kingdom, giving the company an important look into the health of its economy as well as effects of the U.S.-Chinese trade war.
During the company’s second-quarter earnings conference call, management noted some price competition in China but still felt good about underlying demand, calling the market stable.
Caterpillar is also big in North American construction markets, another important industry for the U.S. economy. State and local infrastructure spending is strong, but residential construction spending has turned lower. Baird analyst Mig Dobre warned investors in a September research report that “U.S. construction is on track for its first decline since 2011” because of the residential downturn. With housing slowing it increases the importance of things like federal infrastructure legislation, designed to improve U.S. bridges and tunnels.
Wall Street expects Caterpillar to earn $2.95 in per-share earnings from $13.5 billion in sales when it reports results on Oct. 23.
Emerson doesn’t report earnings until Nov. 5, but it provides investors insight into energy market, roiled recently by attacks on Saudi oil facilities, as well as consumer end markets. Emerson makes the Rigid brand of tools.
Growth in the company’s consumer franchise has been negative the past three months. During the company’s most recent earnings call, management blamed some of the weakness on cool weather that decreased demand for Emerson’s HVAC products. HVAC is short for heating, ventilation and air conditioning.
Wall Street expects Emerson to earn 97 cents a share from $4.6 billion in sales.
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