Earnings reports are a great way for investors to understand the fundamentals of a company. It allows them to look into what exactly is going on inside the organization. We will be exploring the conference calls of Caterpillar (NYSE:CAT) and Netflix (NASDAQ:NFLX). Both companies have a large impact on the overall market. We will be focusing on two important questions. Why did Caterpillar fall short of expectations? And what is Netflix doing to be so profitable? Then we will be previewing two important earnings reports: Apple (NASDAQ:AAPL) and Ford (NYSE:F). Apple is a compelling story for many investors as it has been struggling for the past few months. Is there hope for the struggling tech giant? Ford will give investors a glimpse of the effect Europe is having on U.S. companies. Just how much of an impact is Europe?
Caterpillar reported disappointing earnings Monday morning. The company reported $1.31 EPS which fell short of analysts' estimates of $1.40. The company also reported revenues of $13.2billion which is a 17% decline in revenues compared to Q1 of 2012. Corporate Controller Mike DeWalt explained that this was due mostly to the lack of purchases by their dealers who chose not to increase their inventories.
Caterpillar is a great barometer of the world economy. If the global economy is beginning to grow, the need for earth moving equipment grows. This is why the guidance Caterpillar provides is so important. During the conference call Caterpillar reported that the global economy is going to continue to have relatively weak growth of about 2.5%. This weak global economic growth caused Caterpillar management to reduce guidance for the year. The company cut EPS to $7 a share from $7-$9 a share.
Caterpillar did say that their power systems and construction backlog grew by $200 million. This growth in backlog and improvements in its business in China could mean that Q2 earnings could be beat considering the reduction in guidance given by the company. Still, the slow global economy is really hurting Caterpillar.
Netflix crushed earnings estimates on Tuesday. Analysts were expecting $0.19 EPS, Netflix reported $0.31 per share. That is a 59.8% upside surprise. The company added more than 2 million subscribers in Q1. The increase brings their subscribers in the U.S. to about 29.8 million. This was mostly driven by original exclusive content like "House of Cards" that enticed new subscribers.
Netflix really has benefited greatly by creating original content. In February, Netflix released "House of Cards". The series was a huge hit and could point the way for Netflix to really expand margins. By creating their own content, Netflix could also have new revenue driver if those series are licensed to put on broadcast TV. The company plans to release more original content in the months to come including a new season of the cult favorite "Arrested Development".
Netflix is currently trading at 103x forward earnings. This makes Netflix one the more expensive stocks in the market. If the original content continues to prove as profitable as it did Q1, the company may be strong buy during any pullback.
2 Earnings Reports to Look For:
Apple (OTC:APPL) is releasing earnings at the end of trading on Tuesday. Investors are waiting to see if the company can turn the ship around and regain the spark that made so many fall in love with it. Apple must answer some serious questions. How is business in China? Is it improving or still lackluster? Is it planning on having any new product announcements in the near future? Are the problems with Foxconn (OTCPK:FXCNF) and other suppliers fixed or is it still a work a progress?
Apple has been struggling in recent months as investors are starting to lose confidence in Tim Cook. Apple's lack of a blockbuster new product has given its competitors time to catch up and gain ground on the tech giant. Apple needs to prove it can innovate without Steve Jobs. Until that happens, Apple will struggle to make their case for being the tech company of choice.
Ford Motor Co. is expected to report on Wednesday. The auto industry has seen great growth in North America as drivers begin to replace older vehicles with new models. The real question is, will this growth in North America offset the sluggishness in Europe. Analysts are expecting $33.87 billion in revenues from the car manufacturer.
Ford has benefited nicely from the growth of autos in North America and China. However, Ford was caught flatfooted in Europe and expects to lose $2 billion in that market. If Ford can offset those losses with profits in North America, the company could be a great way to play the auto industry in the United States.