Dow 30 Stock Roundup: Boeing, Caterpillar Beat, IBM Misses

The Dow experienced a largely positive week, buoyed by bullish earnings results. The blue-chip index moved upward on Monday, despite dismal results from a key component. Encouraging earnings results and positive economic news from China and the Eurozone boosted the Dow on Tuesday.

Gunfire in and around the Canadian Parliament building in Ottawa coupled with lower crude prices dragged the blue-chip index into the red on Wednesday. The Dow gained on Thursday following upbeat earnings results and encouraging economic news from the Eurozone and China. The Dow has gained 2.4% during the first four trading days.

Last Week’s Performance

The Dow rose 1.6% last Friday, registering gains for the first time in six days. Markets ended in the green on Friday, offsetting some of the weekly losses on upbeat earnings results and encouraging economic data. Shares of General Electric Company (GE) gained 2.4% after posting third quarter operating earnings per share of 38 cents, beating the Zacks Consensus Estimate by a cent.

Construction of privately-owned housing jumped 6.3% on September to seasonally adjusted annual rate of 1,017,000 from August. Separately, Thomson Reuters and University of Michigan consumer sentiment index rose in October to 86.4, reaching its highest level since Jul 2007.

Over the week, the Dow declined 1%. Through the week, benchmarks experienced volatile sessions as global growth worries and concerns over outbreak of Ebola virus dented investor sentiment. Moreover, declining oil prices also dragged down the markets. However, St. Louis Federal Reserve president James Bullard’s comments, which sparked possibility of the Fed continuing with its bond repurchase plan, boosted investors’ confidence.

Separately, concerns about a possible Ebola outbreak was triggered by news that a nurse was affected with Ebola in the US while treating a Liberian man affected with the deadly virus. This development dragged down airline stocks on concerns that demand for travel-related services may be affected.

Moreover, economic data, including manufacturing activity in New York, PPI and U.S. homebuilders’ confidence was disappointing. However, data on initial claims, industrial production and demand for manufactured goods were positive. Most of the earnings results released last week were also positive.

The Dow This Week

Dismal earnings results from IBM Corp. (IBM) offset benchmarks’ gains on Monday, which nonetheless finished in the green. Encouraging earnings results boosted investor confidence and raised possibility of a solid third quarter earnings season. According to Thompson Reuters, 63.2% of the 87 S&P 500 companies that released earnings reports till Monday posted earnings higher than analysts’ expectations. However, IBM shares plunged 7.1% after reporting dismal third quarter results.

Moreover, IBM recently agreed to pay a sum of $1.5 billion to GlobalFoundries in order to shed its loss-making chip manufacturing unit. This sum will be paid by IBM over a period of three years. IBM was the biggest loser for the Dow, which still gained 0.1%.

The blue-chip index increased 1.3% on Tuesday following encouraging earnings results from the technology sector. Moreover, the prospect of the European Central Bank buying corporate bonds and China’s positive economic data also helped push stocks upward.

China witnessed growth of 7.3% in the third quarter, ahead of the consensus estimate of 7.2%. Additionally, factory output in China grew at a rate of 8% in September. Meanwhile, reports emerged that the European Central Bank (:ECB) may opt for a QE program where it will be buying corporate bonds in the secondary markets.

Gunfire in and around the Canadian Parliament building in Ottawa coupled with lower crude prices dragged benchmarks into the red on Wednesday. Brent December crude declined $1.51 to close at $84.71 per barrel. U.S. crude dipped 2.5% to close at $80.52 a barrel. The slump in crude prices was due to larger-than-expected jump in U.S. crude inventories

Markets had turned green in the morning backed by positive earnings numbers from the tech sector. However, benchmarks erased all gains soon after news of gunfire at the Canadian parliament. The blue-chip index retreated to the red again for this year, losing 0.9%.

Positive results from The Boeing Company (BA) failed to impress investors as they were worried about the costs of the 787 Dreamliner. The company emerged as the biggest loser in the Dow, with its shares plunging 4.5%.

The Dow gained 1.3% on Thursday following upbeat earnings results and encouraging economic news from the Eurozone and China. However, concerns over news that doctors are testing a patient for Ebola in New York, eroded some of the day’s gains. Shares of Caterpillar Inc. (CAT) jumped 5% after posting impressive third quarter results. Separately, 3M Company (MMM) also posted impressive results, gaining 4.4%.

Meanwhile, the Chinese flash HSBC /Markit manufacturing purchasing managers’ index (PMI.V) increased to 50.4 in October from 50.2 in September. This was also higher than analysts’ expectations of 50.3. Moreover, the Markit Flash Eurozone Manufacturing PMI rose to 50.7 in October from 50.3 in September.

Components Moving the Index

The Boeing Company delivered upbeat third-quarter 2014 results backed by robust deliveries. The company reported adjusted third-quarter 2014 earnings of $2.14 per share, beating the Zacks Consensus Estimate by 9.2%. The quarterly number rose an impressive 18.9% from $1.80 per share a year ago.

Including pension components related to market fluctuations and other items, Boeing reported a profit of $1.86 a share, up 23.2% from $1.51 per share in the year-ago quarter. The company's revenues rose 7.5% year over year to $23.8 billion in the reported quarter, comfortably surpassing the Zacks Consensus Estimate of $23 billion.

IBM Corp. reported dismal results in the third quarter of 2014. Non-GAAP earnings (including acquisition and retirement related adjustments) of $3.68 per share missed the Zacks Consensus Estimate by 62 cents. Revenues of $22.4 billion also missed the Zacks Consensus Estimate of $23.5 billion.

However, most importantly, IBM abandoned its 2015 roadmap earnings target of $20.00 per share. Revenues declined 4% year over year, due to weaker-than expected software revenues in the quarter.

Caterpillar Inc. reported a 15% increase to $1.72 per share in its third-quarter adjusted earnings on the back of continued cost management and operational execution despite a muted mining environment. Results trumped the Zacks Consensus Estimate of $1.33 for a positive earnings surprise of 29%.

Including restructuring costs, earnings stood at $1.63 in the quarter, up 12% from $1.45 in the prior-year quarter. Revenues nudged up 1% year over year to $13.5 billion in the quarter, surpassing the Zacks Consensus Estimate of $13.4 billion.

3M Company (MMM) reported third-quarter 2014 net income of $1,303 million or $1.98 per share compared with $1,230 million or $1.78 a share in the year-ago quarter. Reported earnings per share beat the Zacks Consensus Estimate of $1.96. The increase in earnings was driven by higher sales.

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. The year-over-year increase in sales was driven by 3.9% organic local currency sales growth and 0.1% impact of acquisitions, partially offset by currency impacts of 1.2%.

AT&T Inc. (T) reported third-quarter 2014 net income of $3,002 million or 58 cents per share compared with $3,814 million or 72 cents per share in the year-ago quarter. Adjusted earnings per share of 63 cents were a penny shy of the Zacks Consensus Estimate. Quarterly total revenue increased 2.5% year over year to $32,957 million but lagged the Zacks Consensus Estimate of $33,253 million.

McDonald’s Corp. (MCD) reported adjusted earnings of $1.52 per share higher than the Zacks Consensus Estimate of $1.37 by 11%. This was possibly due to a significant decline in non-operating expenses. Revenues of $7.0 billion declined 5% year over year and missed the Zacks Consensus Estimate of $7.2 billion by 3.4%.

Adjusted earnings exclude the impact of increase in tax reserves, impact of the supplier issue in China and also the impact of temporary store closures in Russia and Ukraine. Including the impact of these items, earnings were $1.09, declining 28% year over year.

The Travelers Companies Inc. (TRV) posted operating earnings of $2.61 per share in the third quarter, outperforming the Zacks Consensus Estimate by 41 cents. Earnings improved 11% year over year.

Including net realized gains of 8 cents, net income came in at $2.69 per share, up 17% year over year. Total revenue of Travelers was $6.9 billion, up 7% from the comparable year-ago period. Revenues surpassed the Zacks Consensus Estimate of $6.5 billion.

United Technologies Corp. (UTX) delivered strong third-quarter 2014 results riding high on a healthy margin improvement and fifth consecutive quarter of organic sales growth. The company reported third-quarter 2014 net income of $1,854 million or $2.04 per share, significantly up from $1,432 million or $1.55 in the year-ago quarter.

Excluding one-time items (totalling 22 cents per share), recurring earnings for the quarter were $1.82 per share, which marginally beat the Zacks Consensus Estimate by a penny. Total revenue for the third quarter edged up 5% year over year to $16,168 million, above the Zacks Consensus Estimate of $16,208 million.

Verizon Communications Inc. (VZ) reported third-quarter 2014 net income of $3,794 million or 89 cents per share compared with $5,578 million or 78 cents per share in the year-ago quarter. However, earnings per share of 89 cents fell below the Zacks Consensus Estimate of 92 cents. Quarterly total revenue increased 4.3% year over year to $31,586 million but lagged the Zacks Consensus Estimate of $31,707 million.

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has gained 2.4%.

Next Week’s Outlook

A large number of Dow components reported earnings this week, the majority of which were encouraging. As expected, earnings have powered the market’s gains to a significant extent. Positive economic signals emanating from China and the Eurozone have boosted investor sentiment. Domestic economic data has also been on the positive side.

Next week features a series of crucial economic reports. This includes data on home sales and prices, consumer confidence, durable orders and personal income. The most important of these is the advance estimate for third quarter GDP numbers. If most of these reports on the positive side, stocks could continue to notch up gains in the days ahead.

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