Analyzing Q1 Earnings Beat or Miss for CAT & Four Industrial Stocks

Per the Federal Reserve's report, industrial production rebounded 0.4% each in February and March 2024, following a 0.8% dip in January. However, the overall performance for the first quarter of 2024 showed a decline at an annual rate of 1.8%. In March 2024, the Institute for Supply Management's manufacturing index was 50.3% — the first expansion in 16 months. Despite this uptick, the index averaged 49% for the January-March quarter. The New Orders Index displayed two months of expansion (with a reading of more than 50%) within the quarter, which was promising. Our latest Earnings Trends report, thus, indicates a 1.6% decline for the Industrial Products sector's first-quarter top line, as weak demand seen early in the quarter is expected to have been offset by this late-quarter growth in orders.
The sector continues to face challenges from rampant cost inflation, and constraints on the availability of raw materials, labor and trucking resources. Despite recent improvements in the supply chain reported by the industry players, pricing actions, cost-control measures and productivity improvements are being pursued to mitigate these challenges. We expect the Industrial Products sector's earnings for the first quarter to decline 3.8% year over year. The sector is among nine of the 16 Zacks Sectors that are likely to witness a decline in earnings in the January-March quarter of 2024.
Some major industrial stocks like Caterpillar CAT, W.W. Grainger, Inc. GWW, Dover Corporation DOV, Ball Corporation BALL and Avery Dennison AVY are set to announce their earnings during this week, will significantly impact market sentiment. Caterpillar's performance, in particular, is closely watched by investors, as it serves as a key economic indicator for the sector.
Our quantitative model predicts an earnings beat for a company if it has a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This combination increases the chances of an earnings beat.
Let us take an in-depth look at the factors that are expected to have influenced the earnings performances of these companies in the to-be-reported quarter and whether they will surpass or fall short of expectations.
Caterpillar's top-line results for the first quarter of 2024 are expected to reflect the impacts of the solid backlog of $27.5 billion reported at the beginning of the quarter and the improvement in order trends through the quarter. The Resource Industries segment's volumes are anticipated to have taken a hit from the weak mining demand, which is likely to have been offset by higher volumes in the Energy & Transportation segment (reflecting the solid demand across Oil & Gas, Power Generation, and Transportation). Despite facing higher costs for raw materials, freight, selling, general and administrative expenses, and research and development, we anticipate CAT's cost-control measures, restructuring actions and pricing strategies to have mitigated some of these challenges.
Our proven model predicts that CAT will register an earnings beat when it releases first-quarter 2024 results on Apr 25. CAT has an Earnings ESP of +0.69% and a Zacks Rank #3 at present.

Grainger has been witnessing strong growth in core and non-pandemic product sales for the past few quarters. Also, GWW has been focusing on improving the end-to-end customer experience by making investments in its e-commerce and digital capabilities, and executing improvement initiatives within its supply chain. The High-Touch Solutions segment has consistently outperformed the U.S. MRO (maintenance, repair and operating) market. These factors are likely to have contributed to the company's first-quarter 2024 performance. However, elevated material, freight costs, and higher operating costs and incremental SG&A expenses due to higher technology investments are likely to have negatively impacted its margins.
Our proven model does not conclusively predict an earnings beat for Grainger this time around. GWW has an Earnings ESP of 0.00% and a Zacks Rank #2. GWW is scheduled to release first-quarter 2024 results on Apr 25.

Dover has been witnessing robust bookings and order backlogs across its segments on strong demand and shipment levels, which are likely to have benefited its first-quarter 2024 top line. Gains from the recent acquisitions are also likely to have contributed to the company's performance in the to-be-reported quarter. Dover's margins have been gaining from a strong volume, an improved price-cost spread and tight cost controls for a while, offsetting the negative impacts of supply-chain constraints, input inflation and production disruptions. These are likely to have driven DOV's profitability in the quarter under review.
Our proven model does not conclusively predict an earnings beat for Dover this season. DOV currently has an Earnings ESP of -0.55% and a Zacks Rank # 3, and is set to release results on Apr 25.

Ball Corp has lately been witnessing weaker-than-expected demand, as customer spending has been muted amid higher retail prices, particularly in the United States. This is likely to get reflected in the company's first-quarter 2024 results. High input and labor costs due to supply constraints are also anticipated to have impacted the company's performance in the quarter. However, BALL has been focused on improving its efficiency and reducing costs, which is likely to have negated these impacts and aided margins in the to-be-reported quarter.
Our model predicts an earnings beat for Ball Corp this time around. BALL has an Earnings ESP of +1.50% and a Zacks Rank #3 at present. BALL is scheduled to release first-quarter 2024 results on Apr 26.

Avery Dennison has been witnessing solid demand for the labeling of non-durable consumer goods like food, beverage, and home and personal care products, which is expected to have aided its first-quarter 2024 revenue growth. However, raw material, labor and freight cost increases, and supply-chain constraints are expected to have impacted the company's margins in the to-be-reported quarter. Its ongoing pricing and re-engineering actions are expected to have negated these headwinds on its margins.
Our proven model predicts an earnings beat for Avery Dennison this time around. It is scheduled to release first-quarter 2024 results on Apr 24. AVY has an Earnings ESP of 1.21% and a Zacks Rank of 2 at present.

To read this article on Zacks.com click here.