Caterpillar's Stock Crumbles as the Dow Fights for Gains

Earnings season wallops this industrial leader, while General Motors also is hammered by its quarterly results.

Jul 24, 2014 at 2:30PM
Daily Fool

After a quick start to the day, the Dow Jones Industrial Average (DJINDICES:^DJI) was just three points in the green as of 2:30 p.m. EDT. Most of its stocks have recorded gains so far. Blame Caterpillar (NYSE:CAT) for a big part of the price-weighted index's woes: the heavy-machinery maker's stock fell by 3.3% following earnings that disappointed Wall Street. Outside the Dow, General Motors' (NYSE:GM)stock has taken an earnings-relating hammering to the tune of 4%. Let's catch up on what you need to know.

A softer landing ahead in China?
Upbeats news across the Pacific started the day, as HSBC reported that its China flash Purchasing Managers' Index jumped this month to 52 -- its highest mark in 18 months. That was more than a full percentage point over the 50.7 recording in June and 2 percentage points above the breakeven mark of 50 that indicates neither expansion nor contraction in the manufacturing sector. It's a point of optimism for China, which has suffered through a slowing economy as Beijing fights to maintain its 7.5% GDP growth objective.

While Beijing hasn't engaged in the same widespread stimulus moves as seen in rebounding economies such as the U.S. and Japan, China has engaged in smaller easing measures that economists quickly cited as boosting today's PMI result. All eyes are on the long term, however, as China's housing market remains in free fall. If the country's manufacturing can continue to pick up in the coming months, it'll bode well in supporting housing going forward.

Caterpillar Mining Heavy

Source: Caterpillar Mining Media Library.

China's gains weren't much help to Caterpillar's stock today, despite the manufacturing giant's recent Asia-Pacific woes. Caterpillar did trounce Wall Street's earnings per share estimates with its latest quarterly report, with a $1.69 EPS result representing more than 16% year-over-year growth. However, revenue continues to slide at the industrial powerhouse, falling more than 3% in the quarter and weighing down the stock despite Caterpillar's boost to its full-year earnings guidance.

Foreign trouble continues to hound Caterpillar, particularly in the mining sector. Mining difficulties headlined a 14% fall in Asia-Pacific revenue in the quarter, while Latin American sales fell 16%. While Caterpillar's North America gains are promising -- the company's U.S. construction revenue gained 6% -- the industrial giant is in dire need of a stabilization in both China's economy and the mining sector at large.

General Motors' stock has had troubles of its own today following its second-quarter report. One-time charges, including a recall-related expense of more than $870 million, took $0.47 out of the company's EPS result, leading to net profit falling from $0.75 per share a year ago to $0.11 in GM's most recent quarter. Even when adjusted for one-time items, GM still missed Wall Street's EPS projections by a penny. GM still posted some bright spots, however: North American car sales climbed by 2.5% year over year, while China's ongoing automotive demand helped the company's international profits jump. While the quarter hurt, as long as demand for cars keep up, GM should bounce back from this quarter's big hit down the road.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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