Check out the latest NVIDIA, Caterpillar, and Apple earnings call transcripts.

There wasn't a ton of market-moving news on Monday, but what there was was fairly downbeat. Chip giant NVIDIA (NVDA -2.61%) -- less than three weeks away from delivering its next quarterly report -- preemptively took a blow when it came out with a sharp guidance cut. In addition, heavy equipment powerhouse Caterpillar (CAT -2.36%) did release earnings, and it missed on the top and bottom lines.

In this MarketFoolery podcast, host Chris Hill and senior analyst Emily Flippen talk about the one thing both of those news items had in common -- China -- and weigh in on the other factors affecting the two companies. They also look ahead and ponder what they see as the next obvious scapegoat for lackluster corporate performance: the recently ended federal government shutdown.

A full transcript follows the video.

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This video was recorded on Jan. 28, 2019.

Chris Hill: It's Monday, Jan. 28th. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio today, we're starting the week off right with Emily Flippen. Thanks for being here!

Emily Flippen: Thanks for having me!

Hill: We're going to start in China, then we're going to work our way back to the United States. It seems like almost every other episode of this month, China has entered the conversation in terms of the economic slowdown. Today, we get to add NVIDIA to the growing list of companies in the United States warning shareholders about China. NVIDIA reports earnings on Valentine's Day but came out this morning and said they expect quarterly revenue to come in around $2.2 billion. That's down from $2.7 billion. That's a drop. That's not just a step down, that's a drop. Shares of NVIDIA when we walked in the studio were down 12%.

Flippen: I almost feel like, for NVIDIA, China is a scapegoat. 

Hill: Really?!

Flippen: Yes! Without a doubt! There's definitely going to be a pullback in gaming revenue from China because China's regulations and current economic state, of course we're going to see negative effects. But think about how much they reduced that guidance. That's not an insignificant amount. If you look into that report more, not only is it China, where they tried to emphasize the most, but also their data centers. Their data centers aren't growing as much. That's a concern. My colleague Aaron pointed out that data centers should be the backbone of the company. That revenue shouldn't be as variable as your gaming chips. 

So I almost feel like, while they're trying to put the emphasis on China to make investors feel like, "Oh, maybe this will change in the near future when we see a turnaround in economic growth in China, this is just a temporary headwind," maybe there's something bigger underneath the covers here. 

Hill: It's interesting. The reason I reacted that way is because you and I were talking this morning about what do companies blame when they miss on their earnings reports? We'll get into this a little bit more later in the show. The go-to joke is always about companies blaming the weather. Sometimes that's perfectly valid and sometimes it's not. But I feel like we've seen enough evidence out of China and enough companies talking about China to feel like the economic slowdown is real. 

Now, to your point, if there's more going on in the case of NVIDIA, then yeah, that absolutely could be a situation where they're taking a number of challenges that they're facing and lumping them all in China. But China's on the list for them.

Flippen: Without a doubt. I don't want to downplay the importance of the economic slowdown in China. It's going to negatively affect a lot of companies. I'm a huge investor in Chinese stocks, so unfortunately, I'm all too familiar with what an economic slowdown for China means. NVIDIA also doesn't just have exposure to a general economic slowdown, they have exposure to regulatory hurdles that they're going to face in terms of the demand for games in China in a regulatory environment that isn't very supportive of gaming right now, especially for the younger generations. There are a lot of headwinds for NVIDIA. I just think, whenever I see reports coming out like this, when there's such a drastic change and they really try to emphasize one point that's a very, very salient point, but then they downplay what could be the larger issue boiling underneath the surface...So, without a doubt, definitely has something to do with China. But it also wouldn't be as lenient as to say that's the only thing affecting NVIDIA right now. 

Hill: And now we can add this to the list of conference calls that are going to be interesting to listen to, and what kinds of questions management faces, particularly about the data centers. Obviously there'll be a lot of focus on China, as well.

Sticking in China, Caterpillar's fourth-quarter profits came in lower than expected due to lower sales in the Asia-Pacific region because of lower demand in China. The phrase "bellwether stock" gets thrown around here and there. I sort of feel like bellwether stocks are not applicable across the board when it comes to investing. I feel like they're situational. And in the case of the category of global trade, I feel like Caterpillar is absolutely a bellwether stock, and this has to be a little concerning. 

Flippen: Yeah, that's true. I tend to be a little bit more lenient on Caterpillar than I do on NVIDIA for exactly that reason. When you have a stock that's so correlated to global growth, like a bellwether stock is, it takes a lot of economic slowdown to see the results that we're seeing with Caterpillar. I'll classify this again by saying, yes, there's an economic slowdown in China, but their revenues are still up 11% from where they were last year. It's not like we're looking at a global economic slowdown that's going to cast the end for all of these manufacturing companies. 

Caterpillar, while it is a proxy in a sense, still gets more than half of its revenue from U.S.-based operations. It's important to look at China and see the economic slowdown there and see the impact it's going to have, but also, caveat that a little bit with the natural tendencies and changes that we see both domestically and globally. 

Hill: I'm glad you pointed that out. Once I started to dig into the numbers a little bit with Caterpillar... I went in thinking, "God, how big was this miss? How bad was the profit?" But no. Revenue was up year over year, profits were up year over year. 

This is one of those stocks that appears to be pretty cheap on a valuation basis right now, but I can't say I'm itching to go out and pick up some shares. Even though shares of Caterpillar are 10% cheaper today than they were last week, I'm not itching to throw some money at this. 

Flippen: Yeah, as a growth investor, I can't say that I spend a lot of my time thinking about the perfect price point to get in on a lower-growth company. I agree that they're cheap now in comparison to how they've been in the past, but we're also arguably at the later end of an economic cycle. Maybe that's just what we expect when we look at companies like this. 

I will say that I think the drop that we're seeing in the market today is largely dependent on China, China, China. There's a lot of noise around China right now. We see that lower demand in the Asia Pacific region and it really freaks some people out.

Hill: It does. The old cliché that the market hates a vacuum is absolutely true. This is one of those situations where part of what we're seeing with the drop in the market is the fact that there's not a lot of news on Wall Street today, and what news there is we've just talked about: NVIDIA and Caterpillar. These are the two dominant stock stories of the day, neither of them is good. So maybe we're seeing an over-weighting placed on them, in terms of the market drop. Later in the week, we've got MicrosoftApple (AAPL 0.06%)Amazon, along with a host of other companies reporting. Hopefully we'll see better news tomorrow. 

Flippen: Yeah, and this is the front end of going into peak earnings season right now. The earnings that we've seen up to this point have largely been great, a majority of them beating analysts' expectations. So, these being the first two of the week, I definitely think that there's a little bit of investor psychology that's playing against them.

Hill: This is the first episode in over a month that we've been able to say the federal government is working. The government shutdown ended effectively Friday afternoon. I'm curious, going back to what we were talking about before, in terms of how companies explain away misses in a quarterly earnings report and what they choose to blame. There are absolutely valid excuses when it comes to blaming the weather, depending on what a particular business is. We've also seen examples in the past where companies try to blame the weather, and you pause for a second and say, "Wait a minute, really? Does that apply in your situation?" I think we're going to see a lot of companies coming out saying some version of the following sentence: "January was little weak for us because of the government shutdown." I'm not saying that companies are necessarily wrong to say that. I'm just wondering how much of a pass we should give companies. Depending on the business, this could be a very real material effect on quarterly earnings reports.

Flippen: For real. I don't like excuses, but there's a fundamental difference between excuses and reasons. I think the reason why the federal government shutdown is going to be such a popular excuse as we move into earnings season is because the effects we can't as easily see as an effect in weather, for instance. We talked a little bit earlier, if a hurricane hits Florida and a company's operating exclusively out of California and they try to blame the weather, a natural reader would read through that and think, "Hmm, something's up here." But with the federal shutdown, how do you actually gauge the impact that's going to have on a lot of these large companies like Apple, which is reporting later this week? 

I think it could be a very valid excuse that's hidden as a reason for companies as they come forward and report earnings, because an investor can't necessarily tell, "Hey, is this for real? Are they actually affected by this? Or is it just noise?"

Hill: Right. And certainly, we've seen plenty of stories here in the Washington, D.C., area about the very real negative effects of the shutdown, the effect that it had on people's lives, the ripple effects for, among other things, restaurants in the greater Washington, D.C., area, certainly transportation as well. I like that, excuses vs. reasons. Because, let's face it, there are certainly times, particularly when it comes to retail, where a Company X reports and comes out and says, "Well, one of the things you need to keep in mind is the calendar for this quarter is a little bit different than last year." It's like, you know what? A lot of times, that's a perfectly valid reason, and it explains a very small miss. It starts to move over into excuse territory where retailers are trying to explain away a really big miss on, "Oh, we had one fewer weekend this quarter than a year ago."

Flippen: And I'll just say, looking at this week's earnings, Apple and Tesla are just two examples of companies that are reporting earnings. If Apple comes out and says, "Hey, we slightly missed sales because of the general government shutdown, which led to an economic turndown," maybe the average American is a little bit more scared about America's future, didn't spend as much money. OK, I'm buying that. But if Tesla tries to come out and say, "Hey, we didn't sell as many cars because of the government shutdown," maybe I draw that line there. I think, everything, you need to come in and view it with a critical eye. Take everything with a grain of salt.

Hill: The thing I'm the most curious to see if anyone asks on the Apple conference call is about the battery replacement program they had last year. The reports that I saw were that, internally, Apple expected a million replacements. They had budgeted for, "We think a million people are going to come in and want battery replacements." And it ended up being 11 million.

Flippen: Somebody got fired for that. [laughs] 

Hill: For a company that historically has done such a great job of managing expectations, how in the world did they come up with that number?! How did they miss that badly? Like, "Uh, it's actually 11X worse than we thought it'd be."

Flippen: You have to wonder if the employees at Apple who actually own Apple phones, if they actually thought only a million people wanted a new battery. I mean, I can tell you, I'm a casual Apple user, and my battery barely lasts the day. So, I'm shocked that internally, they could only think a million people would want their batteries replaced. I'm definitely of the mind-set of, somebody flubbed a number, and somebody lost their job.

Hill: I mean, it was a smart move to say, "Look, we're going to offer this program. We're going to make it very affordable for people." But, again, to run the numbers and say, "We think that the hit is only going to be to the tune of 1 million batteries," as opposed to, I don't know, 11 million? Just terrible.

Really quick before we wrap up. On last Thursday's show, we wrapped up the show. Bill Barker and I try to save the tangents for the end. We talked about the most recent limited-edition Oreo cookie, the Most Stuf Oreo. Dan Boyd, our man behind the glass, and I had the chance to try them this morning, because our colleague Robin, who sits close to our desks, Robin very nicely brought in a box that she had purchased over the weekend. We both tried them. Dan, what'd you think? 

Dan Boyd: It's too much Stuf. So, last week, we talked about Oreos, and you went on a little bit of a rant, talking about how you were upset with all of the exciting and innovative things that Mondelez likes to do with their cookies. I defended said innovation, probably too stringently. Now, I want to qualify my crow eating, my humble pie here. While I do think the Most Stuf Oreos have too much Stuf, I'm glad that they tried it. I'm glad that they went after it and tried to bust out of that paradigm, to think outside the box. I'm happy about it. Now, am I going to buy these cookies? No. I'm not. I had one, it'll probably be the last one I have. But I'm glad that Mondelez is out there trying new things.

Hill: I'm not anti-innovation. I'm pro-innovation.

Boyd: It doesn't seem like it, Chris!

Hill: [laughs] I think I'm anti-innovation in this one particular area. Emily Flippen, thanks for being here!

Flippen: Thanks for having me!

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!