Back to top

Image: Bigstock

Caterpillar (CAT) to Report Q2 Earnings: What's in Store?

Read MoreHide Full Article

Caterpillar Inc. (CAT - Free Report) is scheduled to report second-quarter 2020 results on Jul 31, before the opening bell.

Q2 Estimates

The Zacks Consensus Estimate for second-quarter total sales is pegged at $9.20 billion, suggesting a decline of 36% from the prior-year quarter. The consensus mark for earnings per share currently stands at 66 cents, indicating a year-over-year decrease of 77%. Notably, the figure has been revised downward by 4% over the past 30 days.

Q1 Performance

In the last reported quarter, Caterpillar’s top and bottom line both declined on a year-over-year basis. The company missed the Zacks Consensus Estimate on both counts.

In the trailing four quarters, the mining and construction equipment behemoth beat estimates in one of the trailing four quarters, while missing the same thrice. It has a trailing four-quarter negative earnings surprise of 3.27%, on average.

Caterpillar Inc. Price and EPS Surprise Caterpillar Inc. Price and EPS Surprise

Caterpillar Inc. price-eps-surprise | Caterpillar Inc. Quote

Factors to Note

Per the Federal Reserve, industrial production rose 5.4% in June after increasing 1.4% in May and a contraction of 12.7% in April. Industrial production contracted 42.6% at an annual rate in second-quarter 2020. Manufacturing output also slumped at an annual rate of 47% in the quarter. The Institute for Supply Management’s report, the U.S Purchasing Managers’ Index (PMI) came in at 41.5% for April — the lowest since April 2009. In May, the PMI came in at 43.1%. A reading below 50 denotes contraction. Even though the index has climbed to 52.6% in June, the manufacturing index averaged 45.7% for the second quarter.

These figures clearly indicate that the manufacturing sector has been impacted by the coronavirus pandemic and energy market volatility. It is quite obvious that Caterpillar hasn’t been immune to this trend in the second quarter. Moreover, the company’s first-quarter 2020-end order backlog stood at $14.1 billion, down a substantial $2.8 billion from the prior-year quarter. A lower backlog and the company’s steps to cut production to match demand might have impacted Caterpillar’s second-quarter performance.

The company’s supply chain has been disrupted owing to the pandemic. Further, it had to temporarily suspend operations at certain facilities on account of weak demand and restrictions imposed by governments to contain the spread of the virus. Currently, approximately 75% of the company’s primary production facilities are operational. All these factors and low oil prices are expected to get reflected on the to-be-reported quarter’s results.

In the wake of the coronavirus crisis, the company has been taking actions to lower costs including reducing discretionary expenses, suspending 2020 base salary increases and short-term incentive compensation plans for many employees and all senior executives. This might have helped sustain margins amid low volumes in the quarter to be reported.

Segment Expectations

For the Machinery, Energy & Transportation segment, which generates around 90% of the company’s total revenues, the Zacks Consensus Estimate for second-quarter 2020 is pegged at $8.6 billion, suggesting a decline of 36% from the prior-year quarter.
 
The Zacks Consensus Estimate for the Resource Industries segment’s external sales for the second quarter stands at $1,714 million, indicating year-over-year decline of 32%. Low commodity prices in the wake of the pandemic have been compelling mining customers to cut capital expenditures and suspend operations due to government mandates globally. This is likely to get reflected in the segment’s second-quarter sales. The Resource segment is likely to have witnessed sluggish sales across all regions on account of the coronavirus pandemic.

The Zacks Consensus Estimate for the Construction segment’s external sales is pegged at $3,703 million for the to-be-reported quarter, suggesting a year-over-year decline of 40%. This notably indicates the impact of the pandemic across all regions.

For the Energy & Transportation segment, the Zacks Consensus Estimate for external sales is pegged at $3,201 million, indicating a decline of 29% from the year-ago quarter. The segment’s results in the second quarter are likely to reflect the impact of the pandemic and low oil prices.

For the to-be-reported quarter, the Zacks Consensus Estimate for operating profit for the Machinery, Energy & Transportation segment is pegged at $711 million, indicating a decline of 67% from the prior-year quarter. The Resource Industries segment is anticipated to report an operating profit of $106 million, suggesting a decrease of 78% from the year-ago quarter. The Zacks Consensus Estimate for the Energy & Transportation segment is pegged at $351 million, suggesting a decline of 60% from the year-ago reported figure. The Zacks Consensus Estimate for the Construction segment’s operating profit stands at $330 million, suggesting a decline of 74% from the prior-year quarter.

What Our Model Unveils

Our proven model does not conclusively predict a beat for Caterpillar this earnings season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: Caterpillar’s Earnings ESP is -8.53%.

Zacks Rank: Caterpillar currently carries a Zacks Rank #3.

Price Performance

Shares of the company have fallen 5.3% year to date, compared with the industry’s decline of 8.1%.

Stocks Poised to Beat Earnings Estimates

Here are some Industrial Products stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

TriMas Corporation (TRS - Free Report) has an Earnings ESP of +12.50% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regal Beloit Corporation (RBC - Free Report) has an Earnings ESP of +9.23% and a Zacks Rank of 2.

AptarGroup, Inc. (ATR - Free Report) has an Earnings ESP of +12.47% and a Zacks Rank #3.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

Published in