Zacks Industry Outlook Highlights: Deere, Caterpillar, AGCO, Toro and Terex

May 14, 2014, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, May 14, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Machinery, including Deere & Company (NYSE: DE-Free Report), Caterpillar Inc. (NYSE: CAT-Free Report), AGCO Corporation (NYSE: AGCO-Free Report), Toro Co. (NYSE: TTC-Free Report) and Terex Corp. (NYSE: TEX-Free Report).

Industry: Machinery


Results for the Industrial Products sector in first-quarter 2014 provided little reason for the investors to rejoice. Roughly 84% of the sector's companies in the S&P 500 group reported 9.3% year-over-year growth in earnings till May 9, 2014. Earnings beat ratio (percentage of companies coming out with positive surprises) was 66.7%. Revenues edged down 0.7% year over year with a beat ratio of just 18.2%.

The earnings growth path is a bit erratic for the sector, as after a 9.3% earnings growth for the first quarter, only a marginal increase of 0.8% is expected for the second quarter. Second half of 2014 is likely to experience a 3.8% earnings growth in the third quarter and 8.7% in the fourth quarter. For the full-years 2014 and 2015, earnings growth are anticipated to be 7.8% and 12.3% respectively.

For the top line, a wider fall of 1.5% is projected in the second quarter. Thereafter, revenues are likely to inch up 0.7% in the third quarter and 1.3% in the fourth quarter. For the full-years 2014 and 2015, revenues are predicted to rise 0.1% and 4.1% respectively.

In view of all the Zacks sectors combined, total earnings growth rate in first-quarter 2014 is anticipated to be 1.2%. Revenue growth is predicted at 0.9% with a modest gain expected in margins.

For more information about earnings for this sector and others, please refer to our 'Earnings Trends' report.

Important Players in the Machinery Industry

Deere & Company (NYSE: DE-Free Report) is a $34.9 billion company operating in the farm machinery industry.

Caterpillar Inc. (NYSE: CAT-Free Report) is a $65.6 billion company operating in the construction and mining machinery industry. The company has recorded a 5.5% earnings growth in the past five years versus a meagre 1.30% for the industry. Year-to-date return has been recorded at 21.7%. Prospects are bright for the company as earnings are anticipated to rise 10.10% in the next five years.

Other top players in the agricultural, construction and mining machinery industries include AGCO Corporation (NYSE: AGCO-Free Report), Toro Co. (NYSE: TTC-Free Report) and Terex Corp. (NYSE: TEX-Free Report).


Fiscal government expenditures play a counter-cyclical role curbing the ill effects of slower economic development and a tight credit market. China's structural stimulus package, government spending on social welfare, construction of low-cost housing and completion of infrastructure projects on agriculture, forestry and water resources received special attention.

Moreover, the U.S. Congress had a stimulus package designed in 2009 that had money flowing into infrastructure spending. Also, The American Energy & Infrastructure Jobs Act (H.R. 7) will boost spending in infrastructure projects. Approximately $260 billion will be allocated to fund roads, bridges and highway projects over five years.


We remain wary of the rising raw material costs of some of the major players of the machinery industry. Steel prices along with energy, especially coal and fuel prices, remain the prime causes for concern.

Research and development costs are also on the rise for machine makers as they seek to manufacture more sophisticated and technologically advanced machinery. Availability of funds remains a stumbling block as some major nations are still struggling to stabilize their own economies.

Although favorable commodity prices are a boon, government policies affecting prices along with export and import policies and trade relations with other countries will influence the machinery industry at large.

To Conclude: Prospects are Bright

Despite economic uncertainties still persisting in many parts of the world, efforts for implementing better policies, growing trade relations and an escalating population are prime catalysts driving the demand for better infrastructure, modernized methods of agriculture and mining/manufacturing tactics. All these will eventually boost the demand for technologically advanced equipment in these industries. Moreover, looking ahead, the growth path widens for the emerging and developing nations, which will inevitably become rewarding destinations for machine makers worldwide.

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