Stocks finished the month of July strong, but it appeared that market participants were a bit nervous coming into a new month. Stock index futures were down as much as half a percent early Tuesday morning, as investors continued to weigh the prospects for the economy potentially avoiding a recession against the risks that remain in play.
On a relative basis, the Dow Jones Industrial Average (^DJI 0.40%) held up better than its market benchmark peers, and part of the reason for that resilience was that two key Dow stocks reported their financial results Tuesday morning. Caterpillar (CAT 1.59%) offers a look at the industrial economy, while Merck (MRK 0.37%) is a way for Dow investors to get exposure to pharmaceutical sales and drug development. Below, you'll learn more about what these two companies said to get investors' attention early Tuesday.
No slowdown at Caterpillar for now
Shares of Caterpillar rose more than 1% in premarket trading early Tuesday. The maker of heavy industrial equipment reported second-quarter financial results that contradicted the popular perception of an imminent economic slowdown, although Caterpillar did warn that the future could still remain challenging.
Caterpillar's numbers were impressive. Sales of $17.3 billion were up 22% year over year. Adjusted operating profit soared 87% to $3.7 billion, and that resulted in adjusted earnings of $5.55 per share, up 75% from year-ago levels.
Caterpillar's strength came from its diversified exposure. Its energy and transportation segment performed the best, with revenue climbing 27% and segment profits nearly doubling from year-ago levels. The company cited increased engine and turbine demand in the oil and gas and power generation industries, along with greater activity in transportation. Elsewhere, sales in the resource industries segment were up 20%, and construction posted a 19% rise on similarly large segment profit gains.
Just about the only negative thing Caterpillar said was that it expects third-quarter sales to be lower than the company's second-quarter numbers, despite continuing to post strong year-over-year comparisons. With margins near the top of its target range, Caterpillar is firing on all cylinders right now.
Merck looks healthy
Merck also saw its stock post a gain of about 1%. The drugmaker reported second-quarter financial results that weren't as clearly favorable as Caterpillar's, but they were still better than many of those following the stock had expected.
Merck's financials were mixed. Sales climbed 3% to $15 billion. However, acquisition-related costs weighed on Merck's bottom line, producing an adjusted loss of $2.06 per share.
A closer look at Merck's portfolio, however, showed the crosscurrents that the company had to deal with during the quarter. Sales of its COVID-19 antiviral Lagevrio plunged 83%, costing the company almost $800 million in revenue. Meanwhile, though, a pair of key drugs supported revenue growth substantially. Sales of cancer treatment Keytruda climbed 19% to $6.3 billion, while HPV vaccine Gardasil saw a 47% jump in revenue to $2.5 billion.
Merck is optimistic that its completed acquisition of Prometheus Biosciences will bolster its pipeline activity in the years to come. The $10.8 billion price tag for Prometheus drew attention at the time of the announcement, but with key treatments for various autoimmune conditions in clinical trials, paying up for the acquisition might prove justified in the long run.
Merck now expects full-year 2023 revenue of between $58.6 billion and $59.6 billion, with adjusted earnings of $2.95 to $3.05 per share. With that figure including a roughly $4-per-share charge related to the Prometheus purchase, investors seem comfortable with Merck's prospects.
