Machinery Stocks' Earnings Lineup: EMR, AGCO, CFX & ROLL

A few industrial products companies are set to report quarterly numbers on Feb 6. The Q4 earnings season is in full swing, with about 133 S&P 500 companies having already reported results, reconfirming the trend of strong momentum in earnings (as on Jan 26).

Earnings of these companies (accounting for 68.8% of the index’s total market capitalization) are up 12.3% on 8.8% higher revenues. Of these companies, 81.2% have surpassed earnings estimates, with 78.9% coming ahead of revenue estimates.

As per the latest Earnings Preview, data projects that total earnings for the S&P 500 companies are now on track to grow an impressive 11.6% from the year-ago period, on 7.5% higher revenues. This is comparable to earnings growth of 6.7% recorded in third-quarter 2017, on 5.9% higher revenues.

The Industrial Products space (which accounts for about 2% of the S&P 500 index’s total market capitalization) is anticipated to chart one of the highest earnings growth rates this quarter amongst all Zacks sectors. In fact, its earnings are on track to be up 17.6% in the quarter, on 13.8% higher sales compared with the prior year.

Industrial Products stocks have performed well in the fourth quarter, with the industry gaining roughly 8.9%, outperforming the S&P 500’s rally of 6.5% (Oct 1-Dec 31). We believe growth-conducive policies of the government and anticipations of higher infrastructure spending drove the shares’ performance.

Further, there are economic indicators which point toward a strong operating environment for the industry. Industrial production — which measures the level of output of manufacturing, mining and utilities sectors — grew at a rate of 2.9% year over year in October, led by robust growth in mining, manufacturing and utilities. Additionally, new orders for U.S.-manufactured machinery rose 6.4% in the first nine months of 2017, largely driven by order growth for construction, mining, industrial, and material handling machineries. These indicators bode well for the industry.

In addition, implementation of the Trump administration’s growth policies, especially the proposed $1-trillion spending on infrastructure improvement, will be a boon for industrial machinery stocks. The strengthening housing and commercial construction markets in the country are additional tailwinds.

Let’s have a look at how some industrial companies are positioned, ahead of the scheduled announcements tomorrow:

Emerson Electric Company (NYSE:EMR) is engaged principally in the worldwide design, manufacture, and sale of a broad range of electrical, electromechanical and electronic products and systems. The company has a modest earnings surprise history, having beaten estimates twice over the trailing four quarters, for an average positive surprise of 4.4%. In the last reported quarter, the company reported a beat of 3.8%.

Our quantitative model hints at an earnings beat for this Zacks Rank #3 (Hold) company in first-quarter fiscal 2018. This is because it has an Earnings ESP of +1.39% (the Most Accurate estimate of 55 cents being higher than the Zacks Consensus Estimate of 54 cents), in addition to the favorable Zacks Rank. (For more details, read: What's in the Offing for Emerson in Q1 Earnings?).

For a possible earnings beat, the company should have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3. It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum. You can see the complete list of today’s Zacks #1 Rank stocks here.

Emerson Electric Company Price, Consensus and EPS Surprise

Similarly, we expect AGCO Corporation (NYSE:AGCO) to outperform estimates in the fourth quarter. The company, which makes agricultural equipment and related replacement parts, has an impressive earnings surprise history, having beaten estimates each time over the last four quarters, for an average positive surprise of 31.7%. In the last reported quarter, the company surpassed estimates by 9.7%.

A favorable rank and positive Earnings ESP hint toward an earnings beat this season for the company.For the to-be-reported quarter, the company’s Earnings ESP of +3.01% and a Zacks Rank #3 indicate that AGCO Corporation’s earnings will likely beat estimates. Its Most Accurate estimate of $1.14 is higher than the Zacks Consensus Estimate of $1.11.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AGCO Corporation Price, Consensus and EPS Surprise

RBC Bearings Incorporated (NASDAQ:ROLL) manufactures and markets engineered precision bearings and components. The company has a modest earnings surprise history, having beaten estimates thrice in the preceding four quarters, for an average positive surprise of 3.8%. In the last reported quarter, the company missed estimates by 2.4%.

We do not expect RBC Bearings to beat estimates this quarter. Though the company’s Zacks Rank #3 increases the predictive power of ESP, its Earnings ESP of -0.58% makes surprise prediction difficult. The Zacks Consensus Estimate for the quarter is pegged at 86 cents.

RBC Bearings Incorporated Price, Consensus and EPS Surprise

We expect Colfax Corporation (NYSE:CFX) to outperform estimates in its quarterly results. The industrial manufacturing and engineering company has a modest earnings surprise history, having beaten estimates twice in the last four quarters, for an average positive surprise of 5.3%. In the last reported quarter, the company reported in-line earnings.

Our quantitative model hints at an earnings beat for this Zacks Rank #1 company in the upcoming results. For the quarter under review, the company’s Earnings ESP of +0.98% and a favorable Zacks Rank #1 indicate that Colfax’s earnings will likely beat estimates.

Colfax Corporation Price, Consensus and EPS Surprise

Keep an eye on our full earnings articles to see how these players finally fared in the quarter.

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