After Alcoa Inc.’s Results, These 4 Industrial Companies Could

Disappoint This Earnings Season

Source: Alcoa

Caterpillar

Caterpillar is the world’s largest manufacturer of mining and construction equipment, diesel and natural-gas engines, and gas turbines and locomotives.

Image source: Company website

OutlookCaterpillar recently provided its guidance for Q1 2016:

*excluding restructuring costs. Source: Caterpillar’s presentation at Bank of America Merill Lynch Industrials Conference, March 2016.

What that meansCAT’s guidance reflects a staggering 70%-75% year-

over-year drop in Q1 earnings. That raises two key questions: What’s driving the company’s profits so low? Will CAT revise its 2016 outlook following a dismal Q1

performance?

CAT’s last projections for 2016: revenue range: $40 billion-$44 billionearnings per share range: $3.5-$4 (excluding restructuring

costs)

Why CAT could disappointAnalysts’ earnings estimates have dropped

to $0.69 per share from $0.97 a month ago. Caterpillar’s Q1 guidance range still falls short of estimates.

Alcoa’s projections of weaker oil and gas markets bode ill for Caterpillar’s most profitable segment, energy and transportation.

Cummins

Cummins is a leading

manufacturer of diesel engines and related technologies such as fuel and filtration systems, turbines, and emission solutions.

Cummins’ 2017 ISX15 engine. Image source: Company website

The problem Alcoa is bearish on the

oil and gas industry, the North American trucking market, and the European turbine market. Combined, these make up the majority of the end markets that Cummins serves.

Cummins’ engine segment sales mix for 2015

Source: Cummins Q4 2015 earnings presentation

Why Cummins could disappoint Cummins projections for 2016: 5%-9% drop in revenue,

pre-tax operating margin between 11.6% and 12.2%. Analysts’ estimates for Q1: 9% drop in revenue,

earnings per share of $1.79 compared to $2.14 in Q1 2015.

Cummins’ numbers could get worse, asspending in the oil and gas industry remains muted.the trucking markets in North America and Brazil

appear to be deteriorating.

Paccar Paccar is the largest

heavy-duty truck manufacturer in North America, and among the top five truck companies in the world. Paccar also manufactures its own engines.

Image source: Paccar

The troubling signsThe heavy-duty truck market in North America

worsened in the past quarter. Class 8 truck (key heavy-duty segment) sales in

North America slumped 27% year over year in March to hit levels last seen in September 2012.

Alcoa projects NA truck production to decline 23%-27% in 2016 on lower orders and higher inventory.

Alcoa also expects slower growth in Europe, another key market for Paccar.

Why Paccar could disappointDuring its last quarter, Paccar projected

Class 8 truck sales in the U.S./Canada to decline 7%-17% in 2016. Industry numbers for March were worse.

Analysts expect Paccar’s Q1 sales and earnings per share to drop 9% and 10%, respectively. Paccar missed earnings estimates in its fourth quarter.

Deere

John Deere is among

the leading global manufacturers of agricultural and construction equipment. Image source: Company website

Story so farDeere downgraded its outlook for 2016 during its

last earnings release:

Source: Deere’s Q1 Earnings Conference Call Presentation

Numbers you should know

Deere derived nearly 25% each of its machinery revenue and operating income from its construction and forestry business in 2015.

Analysts expects Deere’s second-quarter earnings per share to drop nearly 27% year over year.

Why Deere could disappoint In its last earnings release, Deere projected its

profits to drop nearly 32% in 2016. However, both the agricultural and construction

markets have deteriorated since: Between February and March, Deere announced “indefinite” layoffs of nearly 225 employees at its construction and farm-equipment facilities.

The slump in end markets may compel Deere to downgrade its full-year guidance further.

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