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Ford and 3M: 2 Blue Chips Lifting the Market

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After recording their first loss in five days yesterday, stocks opened higher this morning, buoyed by good earnings news from a couple of blue chips. The S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) are up 0.17% and 0.42%, respectively, at 10:20 a.m. EDT.

On the back of Boeing's earnings report yesterday, automaker Ford (NYSE: F  ) today provides another example of a U.S. industrial company that is succeeding, thanks in part to improved results in international markets.

In the third quarter, revenue grew 12% year on year to $36 billion, ahead of the $34 billion Wall Street was looking for. True, Ford's net income declined by more than a fifth on a generally accepted accounting principles basis to $1.27 billion ($0.31 per share). However, that included close to $500 million in special charges, including a $250 million restructuring charge for European operations. Once you back out special items, adjusted earnings chalk up to $0.45 per share – comfortably ahead of the $0.37 analysts were forecasting.

That European restructuring charge appears already to be earning a return: CFO Bob Shanks cited Ford's efforts in explaining stabilizing vehicle prices in Europe. Shanks also expects European vehicle sales to return to growth, albeit "very, very modest growth," in the near term. Across its three international regions -- Asia-Pacific and Africa, Europe, and South America -- Ford earned an aggregate profit. This marks the first time its non-U.S. activity has contributed to profitability in two years.

Ford now expects to surpass last year's $8 billion in profits in 2013 and to lose less money in Europe. The company's previous outlook had it earning smaller profits with comparable losses in Europe. The stock market isn't immune to this news, as investors are bidding the share up 1.7% so far this morning.

Ford's improvement in Europe is reminiscent of IBM's third-quarter report earlier this week, which saw the technology software and services firm grow revenues 1% in Europe, the Middle East and Africa, compared to a 4% drop in the prior quarter. JPMorgan Chase strategist Thomas Lee may have nailed it when he wrote recently that "the big takeaway in 3Q is going to be surprising resilience in the US and Europe, despite higher interest rates and political intransigence."

Dow component 3M (NYSE: MMM  ) also reported its third-quarter results this morning. Earnings per share of $1.78 were enough to beat the $1.75 Wall Street consensus estimate; revenues of $7.92 billion also slightly topped the $7.85 billion forecast. Shares of 3M are up 0.5% on the news.

The bets on a recovery (place them before everyone knows it has arrived!)
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Related Tickers

9/26/2016 4:35 PM
^DJI $18094.83 Down -166.62 -0.91%
F $12.01 Down -0.16 -1.31%
Ford CAPS Rating: ****
MMM $175.95 Down -1.44 -0.81%
3M CAPS Rating: ****