Caterpillar’s Fall Hurts the Dow Despite Home Depot’s Earnings Bounce

Can Caterpillar dig its way out?
The industrial sector at large has struggled mightily since the recession hit back in 2008. Heavy industry’s largely cyclical and dependent on global economy strength, and instability around the world over the recent past hasn’t boded well for giants such as Caterpillar. While investors have grown more optimistic about the company as of late — the stock’s up more than 17% year-to-date — Caterpillar’s clearly not out of the woods yet. That was on full display today as the company reported its three-month machinery sales through the end of April, a disappointing figure marked by a 25% plunge in Asia-Pacific revenue and a 28% nosedive in Latin America.

Caterpillar’s made up ground in North America this year, capitalizing on growing confidence in the U.S. economic rebound en route to a 12% gain in machinery sales on the continent through the last three months. The ongoing rise in construction should continue to help out in the U.S., as sales in Caterpillar’s Construction Industries segment boomed by 20% overall and 36% in North America in the first quarter. The company’s also pushed hard into cost-cutting measures in order to sustain its profitability. However, the depressed mining sector is weighing down Caterpillar’s results like an anchor, particularly overseas, and even with the construction rebound helping in a big way, it’s hard to see this company achieving more than marginal sales growth over the near future.

Still, Caterpillar is the world leader in its niche — and in such a cyclical sector, it’s worth waiting out the storm and keeping your eyes on the long term. Years down the round, Caterpillar should emerge strong. It’s likely short-term sluggishness, however, that investors will have to be patient about.

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Home Depot welcomes spring
Investors in Home Depot have weathered a more literal storm recently as last winter’s unusually bad weather socked retailers across the nation. That wasn’t more evident than in the home improvement giant’s earnings report today, as a slow start to the company’s most recent quarter left Home Depot falling short of expectations. Still, there’s plenty to be excited about here for shareholders: Despite the miss, Home Depot raised its per-share adjusted earnings by more than 15% year-over-year, while the firm’s revenue climbed by 3%.

Spring’s arrival should help Home Depot get back on track in its current quarter, as it’s the biggest season for Home Depot and other top home-improvement retailers. The firm raised its earnings outlook for 2014 in expectation of better days ahead. That’s helped this stock rise more than 1.9% so far on the day. However, keep an eye on tomorrow’s earnings report from rival Lowe’s (NYSE: LOW). Lowe’s, the No. 2 home improvement retailer behind Home Depot, has pushed hard to close the gap with its top competitor in recent quarters. Both Home Depot and Lowe’s have seen their stocks dive in 2014, but with the poor winter in the rearview mirror, a turnaround could be in the cards for these two companies.

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