U.S. stocks staged a strong rally led by a number of upbeat earnings reports from major industrial companies. In particular, Caterpillar Inc. (CAT) posted higher-than-expected third-quarter earnings numbers and also lifted its profit outlook for the year.
Moreover, 3M Company (MMM) andUnion Pacific Corporation (UNP) managed to beat the earnings estimates, leading the Dow Jones industrial average to come close to having its best day of 2014. The blue-chip benchmark ended up 1.3% higher to close at 16,677.90.
Industrials Earnings in Focus
Mining and heavy-equipment behemoth Caterpillar saw its earnings per share (EPS) increase 15% year over year to $1.72 per share, easily crushing the Zacks Consensus Estimate of $1.33 per share. The blow-out numbers came despite a tough mining environment. Continued cost management and operational execution were the keys for the positive surprise.
Revenues nudged up 1% year over year to $13.5 billion in the quarter, surpassing the Zacks Consensus Estimate of $13.4 billion. Sales in Energy & Transportation and Financial Products segments managed to clock year-over-year growth, but weaker results from the Resource Industries segment continued to be a deterring factor.
Caterpillar’s construction equipment business is getting a boost from the U.S. housing recovery, but its mining business has been held back by slowing demand from Latin America and the Asia-Pacific regions (read: Buy These Low Volatility ETFs for Choppy Markets).
Caterpillar now expects 2014 revenues of $55 billion, at the midpoint of the previous guidance range of $54 billion to $56 billion. The company has, however, raised its earnings outlook for the year, reflecting its disciplined cost control and operational execution.
Union Pacific Corporation
The rail transportation operator, Union Pacific, followed in Caterpillar’s footsteps and managed to beat both Q3 earnings and revenue estimates. Earnings per share rose 23% year over year to $1.53, beating the Zacks Consensus Estimate of $1.51, while revenues increased 11% year over year to $6.2 billion, ahead of the Zacks Consensus Estimate of $6.1 billion.
3M on the other hand came out with mixed financial results, beating on the earnings front but missing on revenues. Earnings per share came in at $1.98 per share, up 11.2% year over year, beating the Zacks Consensus Estimate by 2 cents a share. Net sales during the quarter were $8,137 million, up 2.8% year over year, but below the Zacks Consensus Estimate of $8,234 million.
3M revised its 2014 earnings per share guidance to the range of $7.40 to $7.50 from the prior guidance of $7.30 to $7.55. Organic local-currency sales growth is expected to be in the range of 4% to 5% in comparison to 3% to 6% expected previously. However, foreign currency impacts are expected to reduce sales by 1.5% in the year.
The slew of market beating earnings results pushed all the three industrial stocks higher following their respective earnings releases. Caterpillar surged roughly 5% to close at $99.27 making it the top performer in the Dow, while 3M surged 4.4% higher after its results. Union Pacific also staged a nice rally closing 5% higher.
Solid earnings results from these industrial stocks also fuelled a rally in Industrial ETFs having sizeable exposure to the above three companies. Most of these products gained roughly 2%.
Below we have highlighted three Industrial ETFs which investors should keep in their radar to enjoy the positive momentum in the space:
Industrial Select Sector SPDR (XLI)
XLI is the most popular fund in the space with an asset base of $8.7 billion and an average trading volume of more than 12 million shares. The fund provides exposure to a basket of 66 stocks charging 16 basis points as fees.