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Caterpillar (CAT) Q3 Earnings: Another Beat in the Offing?
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Caterpillar Inc. (CAT - Free Report) is slated to report third-quarter results on Oct 24 before the opening bell. After dismal performances last year, Caterpillar has recovered this year driven by continued improvement in the construction sector, pickup in Resource Industries and disciplined cost-control efforts. Looking at the upbeat estimates for both revenues and profits of its main segment, Machinery, Energy & Transportation for the third quarter, seems like the company is set to maintain the momentum. Notably, revenues in the construction sector will again be led by Asia Pacific and most importantly, Resource industries will deliver an overall improvement across all regions.
The company’s earnings have surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 41.4%.
Year to date, the company’s share price has outperformed the industry it belongs to. The shares gained 41.8%, ahead of the industry’s rise of 40.5%. An earnings beat will help the company sustain the price momentum.
Let’s delve deeper and take a look at factors that might influence the third-quarter results.
Construction, Asia Pacific Hold Promise
Per the Zacks Consensus Estimate, the Machinery, Energy & Transportation segment, which contributed approximately 94% of total revenues in second-quarter 2017, is expected to log year-over-year growth of 15% to $9.7 billion in the third quarter. The segment had witnessed sales growth of 10% in second-quarter 2017. Growth in the third quarter will be led by a 25% growth in Asia Pacific, followed by 19% growth in Latin America, 17% in North America, and 4% in the EAME region.
The Zacks Consensus Estimate for total sales of $10.6 billion indicates a 15.8% growth from the prior-year quarter.
The construction sector has been on an uptrend lately as evident from its leading indicators. The U.S. Architecture Billings Index (ABI), an economic indicator that provides an approximately nine to 12 month glimpse into the future of non-residential construction spending activity, has been at 50 or better recently, signaling robust conditions for the construction industry. Construction sales in both North America and Latin America will increase 25% and 12%, respectively in the to-be-reported quarter.
Construction sales in Asia Pacific have shown resilience recently primarily owing to increased infrastructure and residential investment in China. The third quarter will be no exception given that the Zacks Consensus Estimate for Asia Pacific- Construction depicts an impressive sales growth of 45% to $1.19 billion. Sales will remain flat in Construction-EAME segment.
Per the Zacks Consensus Estimate, Resource Industries is also anticipated to witness expansion in the third quarter with 30% growth projected for both Asia Pacific and EAME. Latin America and North America will also log growth of 18% and 15%, respectively.
Cost Control to Sustain the Bottom Line
In September 2015, Caterpillar set upon significant restructuring and cost reduction initiative, with actions expected through 2018. Once fully implemented, the plan would lower annual operating costs by about $1.5 billion. This will be backed by the consolidation or closure of more than 30 facilities that would decrease manufacturing square footage by more than 10% and reduce the workforce by more than 10,000 people. In the third quarter, revenue growth along with cost reduction will lead to an improved bottom-line as well. The Zacks Consensus Estimate for Profit before Taxes for the Machinery, Energy & Transportation segment is at $538 million, projecting an impressive 166% year-over-year growth.
Further, the Zacks Consensus Estimate for earnings for the third quarter of $1.22 reflects an improvement of 43.8% on a year-over-year basis.
Here is what our quantitative model predicts:
Caterpillar has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — which shows that it is likely to beat earnings in the to-be-reported quarter.
Zacks ESP: The Earnings ESP for Caterpillar is +0.61%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Caterpillar carries a Zacks Rank #2 (Buy), which combined with a positive ESP to be confident of a positive earnings surprise.
The Earnings ESP for Altra Industrial Motion Corp. is +5.76%. It carries a Zacks Rank #2.
Terex Corporation’s (TEX - Free Report) Earnings ESP is +4.63% and it carries a Zacks Rank #2.
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Caterpillar (CAT) Q3 Earnings: Another Beat in the Offing?
Caterpillar Inc. (CAT - Free Report) is slated to report third-quarter results on Oct 24 before the opening bell. After dismal performances last year, Caterpillar has recovered this year driven by continued improvement in the construction sector, pickup in Resource Industries and disciplined cost-control efforts. Looking at the upbeat estimates for both revenues and profits of its main segment, Machinery, Energy & Transportation for the third quarter, seems like the company is set to maintain the momentum. Notably, revenues in the construction sector will again be led by Asia Pacific and most importantly, Resource industries will deliver an overall improvement across all regions.
The company’s earnings have surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 41.4%.
Year to date, the company’s share price has outperformed the industry it belongs to. The shares gained 41.8%, ahead of the industry’s rise of 40.5%. An earnings beat will help the company sustain the price momentum.
Let’s delve deeper and take a look at factors that might influence the third-quarter results.
Construction, Asia Pacific Hold Promise
Per the Zacks Consensus Estimate, the Machinery, Energy & Transportation segment, which contributed approximately 94% of total revenues in second-quarter 2017, is expected to log year-over-year growth of 15% to $9.7 billion in the third quarter. The segment had witnessed sales growth of 10% in second-quarter 2017. Growth in the third quarter will be led by a 25% growth in Asia Pacific, followed by 19% growth in Latin America, 17% in North America, and 4% in the EAME region.
The Zacks Consensus Estimate for total sales of $10.6 billion indicates a 15.8% growth from the prior-year quarter.
The construction sector has been on an uptrend lately as evident from its leading indicators. The U.S. Architecture Billings Index (ABI), an economic indicator that provides an approximately nine to 12 month glimpse into the future of non-residential construction spending activity, has been at 50 or better recently, signaling robust conditions for the construction industry. Construction sales in both North America and Latin America will increase 25% and 12%, respectively in the to-be-reported quarter.
Construction sales in Asia Pacific have shown resilience recently primarily owing to increased infrastructure and residential investment in China. The third quarter will be no exception given that the Zacks Consensus Estimate for Asia Pacific- Construction depicts an impressive sales growth of 45% to $1.19 billion. Sales will remain flat in Construction-EAME segment.
Per the Zacks Consensus Estimate, Resource Industries is also anticipated to witness expansion in the third quarter with 30% growth projected for both Asia Pacific and EAME. Latin America and North America will also log growth of 18% and 15%, respectively.
Cost Control to Sustain the Bottom Line
In September 2015, Caterpillar set upon significant restructuring and cost reduction initiative, with actions expected through 2018. Once fully implemented, the plan would lower annual operating costs by about $1.5 billion. This will be backed by the consolidation or closure of more than 30 facilities that would decrease manufacturing square footage by more than 10% and reduce the workforce by more than 10,000 people. In the third quarter, revenue growth along with cost reduction will lead to an improved bottom-line as well. The Zacks Consensus Estimate for Profit before Taxes for the Machinery, Energy & Transportation segment is at $538 million, projecting an impressive 166% year-over-year growth.
Further, the Zacks Consensus Estimate for earnings for the third quarter of $1.22 reflects an improvement of 43.8% on a year-over-year basis.
Here is what our quantitative model predicts:
Caterpillar has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — which shows that it is likely to beat earnings in the to-be-reported quarter.
Zacks ESP: The Earnings ESP for Caterpillar is +0.61%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Caterpillar carries a Zacks Rank #2 (Buy), which combined with a positive ESP to be confident of a positive earnings surprise.
Caterpillar, Inc. Price and EPS Surprise
Caterpillar, Inc. Price and EPS Surprise | Caterpillar, Inc. Quote
Stocks Worth a Look
Here are a few industrial products stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.
Lakeland Industries, Inc. (LAKE - Free Report) has an Earnings ESP of +13.5% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for Altra Industrial Motion Corp. is +5.76%. It carries a Zacks Rank #2.
Terex Corporation’s (TEX - Free Report) Earnings ESP is +4.63% and it carries a Zacks Rank #2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>