Major benchmarks wobbled between gains and losses on Wednesday as investors reacted to earnings reports that gave a mixed picture of the economy. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) closed in the green, with the energy sector in the lead and consumer discretionary lagging behind.
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Chipotle serves up strong profit growth
Chipotle Mexican Grill reported earnings last night that crushed expectations, powered by higher sales and expanding margins, but shares fell 5.2%. Revenue grew 14.6% to $1.4 billion, exceeding the $1.38 billion analyst consensus. Adjusted earnings per share soared 77% to $3.82, far above the $3.22 Wall Street was expecting.
Comparable-restaurant sales grew 11%, with 7.5% growth in transactions and a 3.5% increase in the average check, partly because of price increases in 2018. The company added a net 24 restaurants in the quarter to bring the total to 2,546, 3.4% above the number a year ago. Restaurant-level operating margin improved 2.1 percentage points to 20.8%.
Chipotle raised guidance for full-year comparable-sales gains to "the top end of our prior high single digit" growth, which may have been a minor disappointment in an otherwise stellar report, since Q2 growth was 10% and Q1 was up 9.9%. The successful carne asada offering is ending around the beginning of December, right when the company will have a tough comparison with last year.
Chipotle shareholders aren't exactly crying in their guacamole, though. The restaurant stock is the best performer in the S&P 500 year to date.
Caterpillar sees more pain ahead from global economic uncertainty
Caterpillar reported declining sales and profit and lowered its outlook for the year, but investors were braced for bad news and bid the shares up 1.2%. Revenue declined 6% to $13.5 billion and earnings per share dropped 8% to $2.66. Those results fell short of the published estimates of analysts following the company, which were for EPS of $2.88 on revenue of $13.6 billion.
The heavy-equipment maker said that dealers reduced inventories by $400 million in the quarter, bracing for lower sales due to uncertainty about the global economy. In the period a year ago, dealer inventories had grown by $800 million. Sales decreased across all three product segments, but Caterpillar maintained its operating profit margin of 15.8% despite the drop in volume.
Caterpillar expects further inventory reductions at dealers and slashed its EPS guidance for the full year to $10.90-$11.40, down from $12.06-$13.06. The company said that the lower inventories and improved lead times will help it respond quickly to changing conditions next year.