Boeing,
Caterpillar and Deere stand out in select group of industrial winners
Published: May 10, 2018 8:40 a.m.
ET
They’re among 16
companies that are boosting profitability and sales per share
![](MarketWatch%2020180510%20Caterpillar%20x40.png)
Bloomberg
Shares of Caterpillar dropped during the company’s first-quarter
earnings call, but the company has increased sales significantly
while improving its gross profit margin.
|
Some
investors have been jittery about large U.S. industrial companies this
year, but we found more than a dozen that have widened their profit
margins and increased sales per share.
A
screen of the S&P 500 industrial sector produced a list of 16
companies that have put up impressive numbers. That can be a starting
point for your own research if you would like to invest in the sector.
The
industrial sector’s performance is in the middle of the pack for the
S&P 500 Index
SPX so
far in 2018:
Total returns |
S&P 500 sector |
2018 through May 8 |
2017 |
3 years |
5 years |
10 years |
Consumer Staples |
-13.4% |
13.5% |
8% |
36% |
132% |
Real Estate |
-4.8% |
10.8% |
14% |
32% |
80% |
Telecommunications |
-11.9% |
0.0% |
5% |
9% |
58% |
Materials |
-4.3% |
23.8% |
19% |
57% |
64% |
Utilities |
-4.4% |
12.1% |
26% |
49% |
86% |
Industrials |
-2.9% |
21.0% |
35% |
84% |
126% |
Health Care |
-2.4% |
22.1% |
15% |
83% |
208% |
Financials |
-0.6% |
22.2% |
46% |
94% |
59% |
Energy |
4.0% |
-1.0% |
1% |
6% |
10% |
Information Technology |
8.7% |
38.8% |
74% |
158% |
259% |
Consumer Discretionary |
5.8% |
23.0% |
43% |
100% |
281% |
|
|
|
|
|
|
S&P 500 index
|
0.6%
|
21.8%
|
34%
|
82%
|
137%
|
Source: FactSet |
A
funny thing happened during and after Caterpillar’s first-quarter
earnings conference call April 24. The construction-machinery
company’s finance chief, Bradley Halverson, provided a thorough review
of the company’s financial results, business plans and outlook. He
said he expected the first quarter’s adjusted profit to be “the
high-water mark for the year,” in part because of a typical “slow
start for project spend[ing]” during the first quarter.
That
remark, taken out of context, helped push down Caterpillar’s shares 6%
that day, while the S&P 500 industrial sector was down 3%.
When
an analyst asked for more information about the expected “high-water
mark” for this year’s quarterly earnings, Caterpillar director of
investor relations Amy Campbell said the company expected the cost of
materials to rise faster than product prices as the year went on,
because the relationship between the two was “very favorable in the
first quarter.”
The
price action that day showed how fickle investors can be, even when a
company announces strong results in its core business of producing
goods and services.
And
that’s what the following list focuses on. Starting with the 70
companies in the S&P 500 industrials sector, 16 have increased their
sales per share for the most recent quarter and 12-month period while
also improving their gross profit margins for both periods.
First, sales per share:
Company |
Ticker |
Industry |
Sales per share - most recent reported quarter
|
Sales per share - year-earlier quarter
|
Increase in quarterly sales per share
|
Sales per share - past 12 reported months
|
Sales per share - year-earlier 12-month period
|
12-month increase in sales per share
|
Jacobs Engineering Group Inc. |
JEC
|
Engineering and Construction |
$27.55 |
$18.92 |
46% |
$92.34 |
$83.80 |
10% |
Caterpillar Inc. |
CAT
|
Trucks/ Construction/ Farm Machinery |
$21.15 |
$16.56 |
28% |
$80.82 |
$66.01 |
22% |
Parker-Hannifin Corp. |
PH |
Industrial Machinery |
$27.62 |
$22.92 |
21% |
$102.82 |
$84.48 |
22% |
Deere & Co. |
DE
|
Trucks/ Construction/ Farm Machinery |
$20.75 |
$17.59 |
18% |
$94.23 |
$84.14 |
12% |
Boeing C. |
BA
|
Aerospace & Defense |
$39.20 |
$33.81 |
16% |
$158.61 |
$147.55 |
7% |
Fortive Corp. |
FTV |
Electronic Equipment/ Instruments |
$4.91 |
$4.37 |
12% |
$19.42 |
$18.01 |
8% |
Union Pacific Corp. |
UNP
|
Railroads |
$7.02 |
$6.30 |
12% |
$27.23 |
$24.48 |
11% |
Eaton Corp. |
ETN
|
Electrical Products |
$11.89 |
$10.75 |
11% |
$46.79 |
$43.54 |
7% |
Roper Technologies Inc. |
ROP
|
Industrial Conglomerates |
$11.54 |
$10.54 |
10% |
$45.51 |
$38.70 |
18% |
Norfolk Southern Corp. |
NSC |
Railroads |
$9.50 |
$8.79 |
8% |
$37.06 |
$34.11 |
9% |
TransDigm Group Inc. |
TDG |
Aerospace and Defense |
$16.78 |
$15.62 |
7% |
$65.43 |
$59.99 |
9% |
Lockheed Martin Corp. |
LMT |
Aerospace and Defense |
$40.41 |
$37.76 |
7% |
$178.88 |
$164.64 |
9% |
Dover Corp. |
DOV |
Misc. Manufacturing |
$12.23 |
$11.52 |
6% |
$50.39 |
$44.52 |
13% |
CSX Corp. |
CSX |
Railroads |
$3.24 |
$3.09 |
5% |
$12.64 |
$12.05 |
5% |
General Dynamics Corp. |
GD
|
Aerospace and Defense |
$25.02 |
$24.22 |
3% |
$102.49 |
$100.57 |
2% |
Source: FactSet |
We
looked at sales per share rather than raw revenue because the
per-share numbers reflect any issuance of stock to fund acquisitions
or to raise money for other purposes. If a company issues a large
amount of shares to fund a purchase, shareholders’ ownership stakes
are diluted, but it may seem “worth it” if sales per share increase.
For
example, Jacobs Engineering, the company on the list with the largest
increase in quarterly sales per share, increased its average quarterly
share count by 17% from a year earlier to provide some of the funding
for its December acquisition of CH2M.
The
next table shows how the companies’ gross margins have improved. A
company’s gross margin is its sales, less the cost of goods or
services sold, divided by sales. It provides an indication of how well
a company has maintained its pricing power. Ideally a company can
increase its sales while also increasing prices. If the gross margin
declines steadily, it’s a sign that a company is “stuffing the
channel” with deep discounts to juice sales or lowering prices to
defend its market share.
Company
|
Ticker
|
Gross margin - most recent reported quarter
|
Gross income margin - year-earlier quarter
|
Gross margin - past 12 reported months
|
Gross margin - year-earlier 12-month period
|
Jacobs Engineering Group Inc. |
JEC |
19.65% |
18.21% |
18.51 |
16.90 |
Caterpillar Inc. |
CAT |
32.34% |
29.52% |
31.17 |
26.09 |
Parker-Hannifin Corp. |
PH |
24.91% |
23.91% |
24.62 |
23.57 |
Deere & Co. |
DE
|
28.97% |
26.94% |
29.20 |
25.81 |
Boeing C. |
BA
|
19.49% |
17.70% |
18.97 |
15.05 |
Fortive Corp. |
FTV |
50.03% |
48.46% |
49.92 |
49.03 |
Union Pacific Corp. |
UNP |
40.27% |
40.00% |
42.45 |
41.42 |
Eaton Corp. |
ETN
|
32.03% |
31.81% |
32.67 |
32.24 |
Roper Technologies Inc. |
ROP
|
62.41% |
61.46% |
62.40 |
61.41 |
Norfolk Southern Corp. |
NSC |
30.73% |
30.02% |
34.12 |
31.11 |
TransDigm Group Inc. |
TDG
|
55.65% |
53.82% |
55.17 |
52.87 |
Lockheed Martin Corp. |
LMT
|
14.25% |
10.43% |
11.72 |
10.72 |
Dover Corp. |
DOV
|
37.02% |
36.69% |
37.28 |
36.58 |
CSX Corp. |
CSX
|
34.32% |
30.85% |
34.36 |
31.54 |
General Dynamics Corp. |
GD |
20.50% |
20.37% |
20.01 |
18.96 |
Source: FactSet |
Any
stock screen is only that — a starting point, rather than a
recommendation. These companies are showing good numbers for their
core businesses. Other factors, such as overhead and leverage, are not
reflected in the margins. If you do your own research, you may develop
a conviction that one or more of these companies will trounce its
competitors over the next decade.
![](MarketWatch%2020171023%20Van%20Doorn%20footer%20profile%20x20.png) |
Philip
van Doorn |
Philip van Doorn covers various investment and industry topics.
He has previously worked as a senior analyst at TheStreet.com.
He also has experience in community banking and as a credit
analyst at the Federal Home Loan Bank of New York. |
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