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US Factory Reports Could Hold Key For a Bull Market

Published: Sunday, 18 Oct 2009 | 9:32 AM ET

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By: AP

There are signs the nation's factories are stirring from one of the worst recessions in decades. Investors this week will find out how awake they really are.
AP

Big manufacturers such as Boeing, [BA Loading... () ] Caterpillar [CAT Loading... () ] and 3M [MMM Loading... () ] will report results and, possibly, provide evidence that companies and consumers are starting to spend again.

The country isn't as dependent on its factories as it was even 20 years ago. Consumer spending is the biggest driver of the economy, but it has shriveled recently as job losses and foreclosures mount.

That's created talk of a manufacturing-led recovery although the economic data have been mixed. If nothing else, hints of a rebound at big industrial firms will boost the stock market and lift people's 401ks.

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The manufacturers reporting their earnings next week depend directly on consumers to buy their packaged food, toys, clothes and other products. But they also sell things the average person doesn't buy. So, they could benefit from big government stimulus programs like road construction, a growing health care sector, the military's need for more cargo jets or airlines looking for new planes.

Activity is picking up at American factories -- overall industrial production has crept back up in recent months and General Electric [GE Loading... () ]said Friday its manufacturing profits grew by four percent in the last quarter. That said, even a hint of growth can seem like a significant up arrow in light of the battering manufacturers have taken.

Two million jobs have been lost in the sector since the recession began in December 2007. And it will likely take a long time for manufacturers to return to where they were before the crisis.

"We have reached bottom and we are at worst bouncing along the bottom," said Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, a public policy economics research organization.

Smaller manufacturer Stanley Works [SWK Loading... () ] is also reporting. If the nation's factories are rebounding, they'll do so using the company's industrial tools. And because copper is used in wires, pipes and other products found in homes, results from copper miner Freeport-McMoRan [FCX Loading... () ] could give investors another window into the housing market.

Here's a preview of four manufacturers reporting earnings next week:

Caterpillar

-- Why it's important: Caterpillar makes bulldozers, motor graders and other machines used to build everything from highways to hospitals. Its engines power cargo ships that help form the backbone of global trade and pump oil and natural gas from the earth. Its mining trucks haul materials such as iron ore, a key ingredient in steel, which is used to make cars and dishwashers.

-- When it will report: Tuesday, Oct. 20.

-- What the experts say: Caterpillar is expected to earn 7 cents per share on revenue of $7.48 billion, compared with profit of $1.39 per share and record-setting revenue of $12.98 billion in the same period a year earlier.

-- You'll know the economy is improving if: Caterpillar says demand for its yellow-and-black machines is picking up, and that it plans to boost production. That could signal more government stimulus spending on new roads and building projects, requiring construction firms to stock up on new equipment. It also could also push Caterpillar to rehire workers laid off this year.

-- You'll know the economy is not improving if: Caterpillar says the construction of buildings like skyscrapers and sports stadiums remains stagnant. That could mean deeper job and production cuts. Earlier this year, Caterpillar said it would slash more than 22,000 jobs, or 19 percent of its work force.

Boeing

-- Why it's important: Boeing builds airplanes that carry people and goods around the world. Travelers fly on its well-known 737 and 747 passenger jets, while packages and other cargo are delivered on its freighters. Boeing also makes military jets, satellites and other defense systems that countries use to protect their borders. Boeing is a major U.S. exporter.

-- When it will report: Wednesday, Oct. 21.

-- What the experts say: Boeing is expected to post a loss of $2.11 per share on revenue of $17.30 billion, compared with a profit of 96 cents on revenue of $15.29 billion in the same period a year earlier.

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-- You'll know the economy is improving if: Boeing sees fewer delays or cancellations of plane orders from airlines or cargo companies. The economic downturn and dwindling air travel have forced some Boeing customers to shelve or put off plans to buy aircraft.

-- You'll know the economy is not improving if: Boeing says it plans to further scale back its airplane production or offer more financial help to cash-strapped airlines.

--Why It's Important: 3M makes everything from Scotch tape to auto parts and is a barometer for the economy. Its consumer goods include Post-It Notes, fishing gear, and insect repellent. The paint on your car is protected by 3M coating. Doctors check heartbeats with 3M stethoscopes and gamblers touch slot machine screens made by 3M. Swine flu fears have lifted demand for the company's face masks.

--When it will report: Thursday, Oct. 22.

--What the experts say: The consensus of analysts surveyed by Thomson Reuters is that 3M will earn $1.16 per share on revenue of $5.76 billion. That's down from $1.41 per share on revenue of $6.56 billion a year earlier.

--You'll know the economy is improving if: 3M reports strong back-to-school sales. Consumer spending has been weak, so an uptick may mean that parents were willing to shell out more as their children returned to class.

--You'll know the economy is not improving if: Sales of auto and housing products don't improve. Those two areas were devastated by the recession; if 3M sees continued weakness there, its a sign the road ahead remains bumpy.

Stanley Works

-- Why it's important: Stanley Works makes tools used by consumers and factories, so its results will show how far we've come in rebuilding the economy. Its hammers and levels hang in home workshops and are piled in the back of contractors' pickups. The company also sells big tools used on factory floors and by mechanics.

-- When it will report: Wednesday, Oct. 21.

-- What the experts say: The consensus of analysts surveyed by Thomson Reuters is that Stanley Works will earn 62 cents per share on sales of $952.6 million. That's down sharply from $2.06 per share on revenue of $1.12 billion in the third quarter of 2008.

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-- You'll know the economy is improving if: Stanley Works sells more industrial tools, which are used to build everything from cars and trucks to roofs and floors.

-- You'll know the economy is not improving if: Sales slip for its consumer, or do-it-yourself market, showing that homeowners are not yet ready to spend money on repair and renovation projects.

Freeport-McMoran Copper & Gold

-- Why it's important: Freeport-McMoran Copper and Gold Inc. is the world's largest publicly traded copper mining company. Its metals are widely used in everything from consumer electronics to homes. Copper, for example, can be found in wiring and pipes for buildings and houses. Gold is a safe-haven investment for people who are anxious about the state of the nation's financial system.

-- When it will report: Wednesday, Oct. 21.

-- What the experts say: Analysts surveyed by Thomson Reuters have forecast, on average, third-quarter earnings of $1.29 per share on revenue of $4 billion. A year ago, the company reported net income of $523 million, or $1.31 per share, on revenue of $4.62 billion.

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-- You'll know the economy is improving if: Demand for some of Freeport's products rebounds. That could signal a reinvigorated housing market that needs wiring and pipes. It may also show that shoppers are out again, buying everything from game consoles to computers.

-- You'll know the economy is not improving if: People keeping bidding up the price of gold that is mined by companies like Freeport. Gold has soared as people look to park their cash in a safe asset.