Trader Talk

Caterpillar, 3M: Global Growth Eases Pain


As with Union Pacific, Caterpillar came out with very cautious commentary. Caterpillar's third quarter earnings were slightly below expecations, and they lowered 2007 outlook (down 3% pre-open), but the name of the game is to lower expectations overall. They said that:

--The rebound in the U.S. economy that occurred in the second quarter should fade in the second half.
--Many U.S. industries important to their sales were in recession, citing weakness in housing, nonresidential construction, nonmetals mining, and coal, and they expect further deterioration in most of those industries in the fourth quarter.

But look outside the U.S.: "We continue to see remarkable growth outside of the United States..."

Here is the mantra for all global organizations, and it is glaringly obvious with Caterpillar. Caterpillar's North American machinery sales decreased 12%, but Europe/Africa/Middle East increased 43%, Asia/Pacific increased 35%, Latin America up 23%. They are expecting mid to high-single digit growth in the economies of all these regions.

3M's numbers were a bit better. Earnings were above expectations, and they raised their earnings expectations for the full year. This is partly due to the different mix of businesses that MMM serves compared to Caterpillar, with strong presence in transportation and industrial (less exposed to construction equipment). Like Caterpillar, MMM saw notable growth overseas.

No surprise that Wachovia joined the other banks, 13 cents below expectations, revenues below expectations...down 2% pre-open. NYX going into the S&P 500...up 4%.

Options expiration day. October expiration typically is to the buyside, but most Octobers are not the 20th anniversary of the 1987 crash.

Questions?  Comments?