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Caterpillar (CAT) to Report Q4 Earnings: Is a Beat in Store?

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Caterpillar Inc. (CAT - Free Report) is scheduled to report fourth-quarter 2020 results on Jan 29, before the opening bell.

Q3 Results & Surprise History

In the last reported quarter, Caterpillar’s top and bottom lines declined on a year-over-year basis due to lower demand across all segments and geographies amid the coronavirus pandemic. However, results came in better than expected as both earnings and revenues beat the respective Zacks Consensus Estimate.

In the trailing four quarters, the mining and construction equipment behemoth beat estimates in three of the trailing four quarter and missed the same once. It has a trailing four-quarter earnings surprise of 18.6%, on average.

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

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

Q4 Estimates

The Zacks Consensus Estimate for fourth-quarter total sales is pegged at $11.18 billion, suggesting a decline of 15% from the prior-year quarter. The consensus mark for earnings per share currently stands at $1.45, indicating a plunge of 45% from the year-ago reported figure. Notably, the earnings estimate has been revised upward by 1% over the past 30 days.

Factors to Note

At the end of third-quarter 2020, Caterpillar’s order backlog was $13.4 billion, reflecting a decline of $1.2 billion on a sequential basis. Also, in the first nine-month period of 2020, Caterpillar’s dealers reduced inventory by about $1.8 billion due to weak demand amid the pandemic. Dealers were anticipated to lower their inventory by a further $0.7 billion in the fourth quarter, taking the total to around $2.5 billion for the full year. Impact of changes in dealer inventories, lower backlog and reduced capital spending at customers’ end amid the pandemic might have hurt the company’s performance in the quarter to be reported.

On a positive note, per the Institute for Supply Management, the U.S Purchasing Managers’ Index (PMI) came in at 59.3% in October, 57.5% in November and 60.7% in December — denoting expansion. Also, industrial production increased at an annual rate of 8.4% for the October-December quarter. These figures indicate that the manufacturing sector seems to be coming out of the COVID-19 induced slowdown aided by gradual resumption of the global economic activities and reopening of businesses. This may have led to an improvement in Caterpillar’s fourth-quarter order levels. Further, the company has been taking actions to lower costs in the wake of the coronavirus crisis. This, in turn, might have contributed to margins 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 fourth-quarter 2020 is pegged at $10.3 billion, suggesting a decline of 17% from the prior-year quarter.
 
The Zacks Consensus Estimate for the Resource Industries segment’s fourth-quarter external sales stands at $1,949 million, indicating year-over-year decline of 14%. Commodity prices improved through the September-December period. Gold and iron ore prices remained strong. Copper and silver prices picked up on the back of recovery in industrial activity. This might have translated into improved orders for the company.

However, weakness in non-residential construction and quarry and aggregates and mining, primarily in North America, is likely to have impacted the segment’s performance in the to-be-reported quarter. Also, overall, mining customers remained disciplined with their capital expenditures due to the ongoing uncertainty, which in turn might have impacted the segment’s sales.

The Zacks Consensus Estimate for the Construction segment’s fourth-quarter external sales is pegged at $4,249 million, suggesting a decline of 15% from the year-ago quarter. This indicates the impact of the pandemic across all regions. For the Energy & Transportation segment, the Zacks Consensus Estimate for external sales is pegged at $4,258 million, indicating a decline of 18% from the prior-year reported figure.

For the to-be-reported quarter, the Zacks Consensus Estimate for operating profit for the Machinery, Energy & Transportation segment is pegged at $1,102 million, indicating a 5% from the prior-year quarter. The Resource Industries segment is anticipated to report an operating profit of $175 million, suggesting a slump of 33% from the year-ago quarter.

The Zacks Consensus Estimate for the Energy & Transportation segment is pegged at $676 million, suggesting a decline of 38% from the year-ago reported figure. The Zacks Consensus Estimate for the Construction segment’s operating profit stands at $529 million, suggesting a decline of 20% from the prior-year quarter.

What Our Model Unveils

Our proven model predicts an earnings beat for Caterpillar this 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.

Earnings ESP: Caterpillar has an Earnings ESP of +1.82%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance

Shares of the company have gained 41.4% in the past year, in-line with the industry.

Other Stocks Poised to Beat Earnings Estimates

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

AGCO Corporation (AGCO - Free Report) has an Earnings ESP of +3.34% and a Zacks Rank of 1, currently.

Dover Corporation (DOV - Free Report) , currently a Zacks #2 Ranked stock, has an Earnings ESP of +5.55%.

Sealed Air Corporation (SEE - Free Report) has a Zacks Rank #2 and an Earnings ESP of +2.90%, at present.

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