When you first see the numbers they pretty much cause you to shake your head and focus your eyes and catch your breath and say "nah, that can't be, that's not for real."
When Caterpillar's numbers first flashed I said "nah, has to be a one-time gain, no way they could do $1.28 when the street when the street was looking for 62 cents." But it was real. The company simply made a ton more money off of its revenues than anyone, even Goldman Sachs, which has become the biggest bull on the street, with a 91 cent estimate, after being the biggest bear with a sell on the stock much lower.
How did it happen? CAT has enormous leverage, which in this case is not debt and is not the ability to muscle someone else. It means that with a small amount of sales you can get gigantic profits. Where did they do it? Energy and transportation shined. Backlog was up big allowing management to boost its outlook to $3.75 from $2.90. That's incredible, and given the low inventories in the system I am predicting more upside surprises ahead.
The turn in DuPont, led by that amazing turnaround genius Ed Breen continues. Here's another head shaker. I saw the company reported a $1.64 when the street anticipated $1.39. We are not used to seeing big blow-outs from this company. In fact we are used to seeing estimates met or, on a big day, exceeded by a penny.
Again, it's not legerdemain. It's all about being able to charge more and have better sales, known as organic growth, which was up 5%. Dupont's got so many things going for it, whether they be the wildly strong agricultural numbers, or fantastic materials pricing, plastics that go into things like televisions and cellphones and personal computers, or in nutrition where they make the stuff that goes into probiotics, one of the fastest growing end markets out there.
Plus, Breen's far from done. This company is going to merge with Dow Chemical, a deal that should close by August, and then there will be a remake into three companies. If you own either one it's a terrific situation ahead.
Finally, after tremendous quarterly numbers since taking over McDonald's a few years ago when the stock was in the 90s, Steve Easterbrook did it again. He delivered four percent comparable sales, an astounding number for this once lumbering company and gave you $1.47 in earnings when the street was looking for $1.33. Again, I though this report had to have some sort of one-time gain because you just don't see a company like this doing that much better than already raised estimates. How did Esterbrook do it? One thing's for certain, this isn't about all-day breakfast any more. This is about leadership, namely getting the franchisees to buy into a plan for more simplified menus, lower prices and better technology. Easterbrook has often talked about ethereal concepts that I can only distill into "mojo" meaning that when the franchisees feel the momentum they put more people on line, they step up training and they spend more money spiffing up their stores.
You may doubt these and just think it is all about cutting prices on sodas and better Big Mac deals, but whatever, it is working.
We are so used to what I would call manufactured earnings beats, meaning a penny better than expected, all done with share buybacks, smoke and mirrors. Not these. In each case the execution is simply much better than anyone could have dreamed even a couple of years ago.
These are remarkable numbers, ones to be applauded and they serve as a reminder that an expensive market may not be all that expensive when you break it down to its pieces and look at the individual results that companies Caterpillar, Dupont and McDonald's are reporting.