CAT Caterpillar Inc

By Jessica Menton 

Caterpillar Inc.'s earnings disappointed on Wednesday, and there are early indications that there's more pain coming for industrial stocks.

Often, investors look to transport companies to glean what's ahead for big industrial firms -- and the sector has had a bumpy ride recently. Muted results from railroad operators, including CSX Corp., were the latest dose of gloomy news.

Another worrisome sign for industrials: According to the Cass Freight Index of North American shipments by truck and rail, shipments declined 5.3% in June, the seventh consecutive monthly decline. Cass Information Systems Inc., a processor of freight payments for companies, points especially to a drop in chemical shipments.

"We have asserted for years that one of the best predictive indicators of U.S. domestic industrial activity is the chemical carload volume moved via railroad," said the index report. "It is almost impossible to manufacture, even assemble, anything in mass quantity without chemicals."

The threat of tariffs are also weighing on industrial companies.

"What's worrisome is that we're seeing high inventories across the industrial world, perhaps related to trade tensions as companies buy extra inventories," said Rob Wertheimer, a founding partner and machinery analyst at Melius Research.

But even as the industrial economy comes under pressure, there are signs from the transport industry that the consumer economy is holding up. Packaging giant United Parcel Service Inc. reported a 30% jump in next-day air-shipping volumes for the second quarter Wednesday, sending shares 8.3% higher -- heading toward their best day since October 2008. Airliner JetBlue Airways Corp. beat analysts' earnings estimates Tuesday.

Trucks, which are also closely tied to the retail sector, also suggest consumer firms may fare better than industrials. Heavy-duty truck maker Paccar Inc. missed profit estimates Tuesday, but delivered a better-than-expected outlook for orders next year.

Write to Jessica Menton at Jessica.Menton@wsj.com

(END) Dow Jones Newswires

July 24, 2019 15:59 ET (19:59 GMT)

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