Caterpillar’s earnings surprise is good news for all mining equipment shares

This morning, October 24, before the New York market opened Caterpillar (CAT) announced third quarter earnings of $1.71 a share, a positive earnings surprise of 7 cents a share.

Today, as you’d expect Caterpillar shares are up big—5.08% as of 2:20 p.m. New York time—and as you’d expect Caterpillar’s positive surprise has sent shares of other companies in the construction and mining equipment sector soaring.

And the more exposure a company has to mining—the strongest part of Caterpillar’s business this quarter—the bigger the gain. So Deere (DE), which has more exposure to farm than to construction equipment, is up 3.26%. Joy Global (JOYG), which is more of a pure play on mining than Caterpillar, is up 5.68%. And Titan International, which has big exposure to mining and has been beaten down more than either Caterpillar or Joy Global, is up 11.64%. (Deere and Joy Global are both members of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ . Titan International is a member of my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

It also probably hasn’t hurt Titan International that the company reports earnings on October 26, after the New York market closes, and that’s close enough to Caterpillar’s report date to make the momentum players jump on board in search of another earnings surprise. (Joy Global, by contrast, doesn’t report earnings again until December 14.)

Let’s not move on too quickly from Caterpillar’s earnings, though. Read more

Update Freeport McMoRan Copper & Gold (FCX)

On July 21 Freeport McMoRan Copper & Gold (FCX) reported second quarter earnings of $1.43 a share, 7 cents a share above Wall Street projections. Revenue climbed to $5.81 billion, a 50.5% increase from the second quarter of 2010. (The stock is member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

There were three especially positive parts of the Freeport McMoRan story this quarter.

Sales grew from last year’s levels. Sales of copper climbed to 1 billion pounds (from 914 million in the second quarter of 2010), molybdenum to 21 million pounds (from 16 million) and gold to 356,000 ounces (from 298,000.)

Cash costs fell with net cash costs for copper, for example, dropping to 93 cents a pound from 97 cents a pound in the second quarter of 2010.

And projects that are estimated to add 20 million pounds of molybdenum production in 2013 and 975 million pounds of copper production by 2016 continued on track at very modest capital cost. Read more

Buy Titan International (TWI)

Here we go again?

In 2007 Titan International (TWI) was one of the hottest stocks in the commodity sector, climbing 55%, as the company couldn’t make tires fast enough to meet demand in the mining sector.

The stock plunged in 2008—falling 67%–before recovering (and how—up 141%) in 2010. The shares are up 41% in 2011 to date but down 11.4% in the last month.

Buy on the dip?

Depends on how long you think the demand for the tires that go on the big trucks that haul coal and iron ore will last. Prices for the huge tires that go on Caterpillar trucks, for example, have climbed to $100,000 on the spot market. In the last boom Barrick Gold reported spending $60,000 for a tire on its largest trucks.

In the first quarter of 2011 Titan International set new records or revenue at $280 million (up 43% from the first quarter of 2010) and for operating income (excluding one time charges for exchanging convertible debt for stock) at $27 million (up 166% from the first quarter of 2010). That kind of growth makes the stock’s trailing 12-month price to earnings ratio of 221 look reasonable. At a projected growth rate of 185%, the forward price-to-earnings ratio on projected earnings is just 16.9.

No doubt that the mining business tends to boom or bust—but actually 75% of Titan International’s revenue in the first quarter came from its farm tire business. Read more

Update Joy Global (JOYG)

Another great quarter from mining equipment maker Joy Global (JOYG): earnings per share for the second quarter of the company’s fiscal 2011 year came in a $1.52, 17 cents a share above Wall Street estimates. Revenue climbed 19% from the second quarter of fiscal 2010 to $1.06 billion. That was slightly above the consensus forecast of $1.03 billion.

Another increase in guidance for the full 2011 fiscal year: For fiscal 2011 the company now sees earnings of $5.30 to $5.60 a share (former guidance was $5.10 to $5.40.) Wall Street analysts had been projecting earnings per share of $5.41. Revenue, the company now projects, will total $4.1 billion to $4.3 billion. That’s above former guidance of $4 billion to $4.2 billion. (The Wall Street consensus was $4.17 billion.)

And solid trends beyond the current year: Bookings are still climbing with an increase of $297 million from the first quarter of fiscal 2011. Backlog increased by $462 million to $2.6 billion. Key commodity markets—copper, for example—remain in a supply/demand deficit that still has a while to run. In the case of copper, for example, until 2013 or later, Joy Global said. In its conference call the company noted that it continues to see new projects—and therefore new potential customers—at a rate that matches current bookings.

The one thing that I was worried about—declining margins—wasn’t a factor in the quarter. Read more

Peabody’s the name if Asian coal is the game

(I am on vacation until August 24. During that time Jubak Picks will operate on a reduced schedule of one or two posts a day.)

If China is the story in coal—and I think it is since China is now the No. 1 energy consumer and uses about three times as much coal as the United States—then Peabody Energy (BTU) is the story among coal companies.

In reporting its second quarter earnings the company said that it expects global net coal imports to grow by 30% in 2010.

China is the driver of demand.

But the country isn’t alone. India’s coal imports are up 22% in 2010 and Peabody estimates that imports will finish the year up 20% from the total for 2009.

In January Peabody forecast that it would sell 240 million to 260 million tons of coal in 2010, compared to 244 million tons in 2009, because of increased demand in Asia.

Peabody, the largest U.S. coal producer, has been gradually adding assets in Australia in an effort to move closer to the fastest growing end markets. Peabody projects that it will sell 27 million to 29 million tons of Australian coal in 2010. That’s up from an earlier forecast of 26 million to 28 million tons.

Someday coal may hit the wall because the world’s countries have decided to implement an enforceable global climate change program to reduce carbon emissions, but Peabody hasn’t seen any effects from the half-hearted (or less) efforts so far. Coal is actually gaining market share at utilities and consumption in power generation is up 6% through the first half of 2010 from the same period of 2009. Thanks to the increased demand stock piles look like they’ll be down to normal levels by the end of 2010. That should help prices that Peabody already calls good.

In its July 20 second quarter earnings report the company beat Wall Street earnings estimates by 6 cents a share, reporting 69 cents for the quarter, and missed on revenues by $20 million, reporting $1.66 billion. Peabody confirmed earnings guidance for all of 2010 of $2.60 to $3.15 a share.

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.