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Global Growth Concerns Creeping Into Earnings Outlooks, CAT Included

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July 23, 2015

Bulls and bears are able to pick their spots as the earnings barrage continues. More than 10% of the S&P 500 (SPX) reports today alone. And plenty of blue chips fill out the ranks. Quarterly results are generally packing few surprises for a Wall Street that likely pegged this quarter more accurately given global growth ripples and a strong dollar and as companies pared their own guidance coming into the period. But some companies—industrials and especially multinationals—are clear in expressing their concerns about global growth in coming quarters. And disappointing revenue, I can’t say it enough, continues to sour the overall earnings season. Big, high-volume retail-traded stocks populate the after-hours earnings line-up: Starbucks (SBUX), Amazon.com (AMZN), and Visa (V) among them.

Stocks are pointed narrowly higher after a weak start to the week but there’s no clear tide change in sentiment from the cautious optimism that leaves major averages teetering near record highs. A few Dow downers populated the early headlines. Among them, Caterpillar (CAT) cut its outlook (more from them below), McDonald’s (MCD) said its Q2 same-store sales decline followed disappointing guest traffic across its many segments, and 3M (MMM) expressed concern for slowing global growth. And, go figure, demand for pricier SUVs and crossovers is behind a Street-beating jump in General Motors’ (GM) profit. But, here we go, GM revenue dropped $1.4 billion to $38.2 billion.

Lower fuel prices likely helped with big-vehicle demand but this could be an upbeat sign for the domestic economy. Pretty remarkable perhaps when you think of big customer China’s slowing economy. Speaking of falling energy prices, crude is lower again today and gold, although pausing a 10-session slide so far today, is trading well under $1100 as a wide-sweeping commodities selloff continues in step with a stronger dollar.

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FIGURE 1: GLOBAL CONCERNS LIMIT DOW INDUSTRIALS.

Big blue-chips are among the many companies reporting earnings, leaving the Dow Jones Industrial Average down to start the week. Revenue and global growth concerns are percolating among Caterpillar (CAT), 3M (MMM), and others. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

CAT Cuts Outlook. Caterpillar (CAT), down 13% year to date, traded lower early Thursday after its Q2 sales missed Street expectations. The machinery company that makes tracks all over the world trimmed its full-year outlook. Earnings fell to $710 million, or $1.16 a share, from $999 million, or $1.57 a share, in the same period a year ago. Excluding non-recurring restructuring costs, adjusted earnings per share came in at $1.27, about what the Street expected. But revenue fell 13% to $12.3 billion, below Street expectations for $12.74 billion, with sales of construction equipment falling 18%, energy and transportation off 12%, and resource industries down 11%. For the full year, CAT cut its sales outlook to $49 billion from $50 billion, but affirmed its adjusted EPS outlook of $5. The company said it plans to buy back about $1.5 billion worth of its stock during Q3.

UA Looking Fit? Under Armour (UA) looks to have picked a few winners this year as its brand faces have collected championships in the NBA, NFL, and the PGA Tour. Investors early Thursday are cheering UA’s raised full-year guidance. In this case, revenue is a positive factor: UA now expects full-year sales of $3.84 billion, up from $3.78 billion.

Coming Next Week: The Federal Reserve’s interest rate setting arm meets next Wednesday and while it’s not expected to act on rates just yet, stock investors are hungry for confirmation that a September rate hike is increasingly likely. According to many Street economists, September is the expected start date to what’s likely to be a slow campaign to unwind accommodative monetary policy. But no one is 100% sure when the Fed will act or just how fast the panel will respond once it breaks the seal on rate hikes. More earnings flow next week, too, with revenue continuing as the line item to watch.

Good trading,
JJ
@TDAJJKinahan

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