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Caterpillar Inc. (CAT - Free Report) , a Zacks Ranked #1 (Strong Buy), is the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company is one of only a handful of U.S. companies that leads its industry while competing globally from a principally domestic manufacturing base. The company records more than half of its sales to overseas customers. Their products are used in the construction, road building, mining, forestry, energy, transportation and material-handling industries.

Recent Earnings Report

Last week, Caterpillar reported Q2 17 earnings where they easily beat both the Zacks consensus earnings and revenue estimates.  On a year over year basis, second quarter sales rose by +9.7%, profit per share improved by +45.2%, and adjusted profit per share (including restructuring costs) was up by +36.7%.  

Management Raises Future Guidance

Due to increased demand across several segments, and efficient cost control, management increased both sales, and profit per share guidance for FY 17.  Sales guidance was raised from a range of $38-41 billion to a range of $42-44 billion.  Profit per share was lifted from $2.10 to $3.50.

Management’s Take

According to Jim Umpleby, CEO, “Our team delivered an impressive quarter. As demand increased, we continued to control costs and generated higher profit margins.  While a number of our end markets remain challenged, construction in China and gas compression in North America were highlights in the quarter. Mining and oil-related activities have come off of recent lows, and we are seeing improving demand for construction in most regions.”

Mr. Umleby continued, “Given our performance in the first half of the year and current quotation and ordering activity, we are confident in raising our full-year 2017 outlook. We remain focused on serving our customers, delivering strong operational performance and executing our ongoing restructuring activities. During the second half of 2017, we anticipate making targeted investments in initiatives that are important to our future competitiveness, including enhanced digital capabilities and accelerating technology updates to our products. We intend to do this without adding to the structural costs we’ve worked so hard to streamline. These investments will prepare us to take advantage of the growth opportunities ahead.”

Price and Earnings Consensus Graph

Due to the strong earnings report, and subsequent raise in guidance, the company’s stock price and future earnings estimates have increased.

Caterpillar, Inc. Price and Consensus

Caterpillar, Inc. Price and Consensus | Caterpillar, Inc. Quote

Increasing Earnings Estimates

Over the past seven days earnings estimates for Q3 17, Q4 17, FY 18, and FY 19 have all seen positive revisions; Q3 17 improved from $0.89 to $1.13, Q4 17 rose from $0.86 to $1.17, FY 17 was increased from $4.32 to $5.23, and FY 18 jumped up from $5.40 to $6.41.

Bottom Line

The second quarter beat was to be expected, but the raise in guidance caught most analysts by surprise.  Caterpillar saw improving volumes across all segments with favorable pricing. Further, total backlogs rose by almost $3 billion (+25.4 YoY gain) to $14.8 billion. Both the construction and resource segments acted as strong tailwinds for the company.  Lastly, the increase in new durable goods orders bodes well for the third quarter 2017.  With plenty of upside, and the market in the beginning stages of recovery 2017 is looking to be a breakout year for Caterpillar.

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