Today is earnings central, earnings-palooza, an earnings-a-thon; whatever your favorite cliché is for a whole mess of something, as we say down here in the south, it applies.
Among the big names reporting today are 3M (MMM), Amazon (AMZN), GM (GM), Microsoft (MSFT), Baidu (BIDU), Verizon (VZ) and Eli Lilly (LLY). I could go on, but you get the picture. There are a lot of closely followed companies who will be revealing details of their Q1 2014 performance.
At times like this, it is easy for anybody who follows markets to get overwhelmed. Obviously, if you have a position in something you will be watching that closely, but to my mind the most interesting results released today came out before the market opened.
Caterpillar (CAT) is regarded by many as an indicator of the health of the global economy. The logic is straightforward. If Caterpillar is selling a lot of mining and construction related equipment, then people are building things and consuming basic materials and if people are building things and consuming basic materials then demand is robust. Or, at least, those in the best place to know expect it will be.
Caterpillar’s results were fantastic. EPS of $1.61 vs. average estimates around $1.23 and revenue of $13.2 billion, again above street expectations of $13.1 billion, but only slightly. Dig a little deeper and the picture is not quite so clear. Most of the improvement came in construction equipment, particularly in the US. Mining was still a little disappointing. More clarity comes from the fact that the company raised their full year profit forecast for 2014 to $6.10 per share from $5.85, but kept sales forecasts steady. Caterpillar is making more money, but from cost savings, not sales growth.
CAT will no doubt open higher this morning, but I would not be a buyer. Cutting your way to profitability is necessary for large companies at times, but doesn't bode well for long term growth.
The global picture, then, looks stagnant. What about the US? For indicators there, many will look at the UPS (UPS) results. They reported disappointing numbers and placed 2014 guidance at the bottom end of their previous range. UPS, however, is consumer oriented and was deeply affected by the adverse weather conditions in the first quarter.
A more positive, and possibly more significant, indication came from Old Dominion Freight Line (ODFL).
Old Dominion reported a 13.2% increase in profits to $45.9 million. Significantly, this came from a 15.2% increase in revenues to a record $620.3 million. They also announced an increase in their expected capital expenditure this year.
The performance of individual companies in one quarter usually tells us more about that company’s relative success than it does about the overall state of the economy. On that basis alone, these results would make me view ODFL as a buy. Old Dominion, however, is more focused on business to business freight than direct to the consumer business, so it isn't too much of a stretch to conclude that their success is based on an increase in business activity.
At the start of this earnings season, I suggested that the biggest clue to the overall direction of the markets would come from watching capital expenditure this quarter, as a revival in the fortunes of US manufacturing is essential if the recovery is to continue or even pick up in pace. ODFL's results would suggest that businesses are becoming more active, a good sign for the US. Indeed, Old Dominion themselves announced increased capital expenditure for this year.
Taken as a whole, then, the results from this morning would indicate that, while global growth is still pausing, the US is steaming ahead. For investors this means that the US is still the place to be.