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

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Caterpillar Inc. (CAT - Free Report) is scheduled to report second-quarter 2021 results on Jul 30, before the opening bell.

Q1 Results & Surprise History

In the last reported quarter, Caterpillar’s top and bottom lines not only improved on a year-over-year basis but also beat the respective Zacks Consensus Estimate due to high demand in end markets.

The mining and construction equipment behemoth beat estimates in each of the trailing four quarters. It has a trailing four-quarter earnings surprise of 41.6%, on average.

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

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

Q2 Estimates

The Zacks Consensus Estimate for second-quarter total sales is pegged at $12.4 billion, suggesting growth of 24.2% from the prior-year quarter. The consensus mark for earnings per share currently stands at $2.38, indicating an improvement of 131% from the year-ago reported figure. The earnings estimate has remained unchanged over the past 30 days.

Factors to Note

As the manufacturing sector gradually came out of the COVID-19 induced slowdown on the back of resumption of the global economic activities and reopening of businesses, the scenario started reflecting on Caterpillar’s order book over the past two quarters. At the end of the first quarter of 2021, Caterpillar’s order backlog was $16.9 billion, reflecting a $2.7 billion increase on a sequential basis. For the second quarter, total industrial production rose at an annual rate of 5.5%. Manufacturing output increased at an annual rate of 3.7%. Commodity prices have been improving so far this year. This indicates that Caterpillar is likely to have witnessed improved order levels over the course of the second quarter as well. This along with a stronger backlog and dealer restocking may have benefited Caterpillar’s second-quarter performance.

The company has implemented several actions to lower costs in the wake of the coronavirus crisis. Its restructuring actions are expected to result in savings of around $150 million this year. Part of this savings might have contributed to margins in the quarter to be reported. However, these abovementioned benefits might have been offset by higher SG&A expenses due to increased incentive compensation. Supply chain headwinds currently faced by the industry along with inflated costs for raw materials and freight services are likely to have weighed on the company’s 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 second-quarter 2021 is pegged at $11.7 billion, suggesting an improvement of 26% from the prior-year quarter.
 
The Zacks Consensus Estimate for the Resource Industries segment’s second-quarter external sales stands at $2,189 million, indicating year-over-year growth of 28%. Through the quarter, iron ore prices remained strong. Copper and silver prices picked up on the back of recovery in industrial activity. Even though gold prices have been volatile, it remains higher than the prior-year levels. This might have translated into improved orders for the company.

The consensus mark for the Construction segment’s second-quarter external sales is pegged at $5,587 million, indicating growth of 39% from the year-ago quarter. This might have been aided by strength in China, Brazil and residential activity in North America. Recovery in U.S non-residential construction is likely to have aided performance in the quarter.

For the Energy & Transportation segment, the consensus mark for external sales stands at $3,996 million, indicating a 13% growth from the prior-year reported figure.  Industrial is expected to have witnessed growth with activity strengthening across most applications. Improvement in power generation supported by data center activity, and rising sales in transportation courtesy of increase in rail services and international businesses may have contributed to sales in the quarter.

For the to-be-reported quarter, the Zacks Consensus Estimate for operating profit for the Machinery, Energy & Transportation segment is pegged at $1,683 million, suggesting a 125% year over-year surge from the prior-year quarter. The Resource Industries segment is expected to report an operating profit of $326 million, suggesting growth of 114% from the year-ago quarter.

The Zacks Consensus Estimate for the Energy & Transportation segment’s operating profit is pegged at $706 million, suggesting growth of 13% from the year-ago reported figure. The estimate for the Construction segment’s operating profit stands at $1,027 million, indicating a rise of 98% from the prior-year quarter. Stronger sales and leverage on higher volumes might have contributed to the margin expansion.

What Our Model Unveils

Our proven model does not conclusively predict an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Caterpillar has an Earnings ESP of -7.56%.

Zacks Rank: It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance

Shares of the company have gained 49.8% in the past year, compared with the industry’s rally of 51.4%.

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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.

Terex Corporation (TEX - Free Report) , currently a Zacks #1 Ranked stock, has an Earnings ESP of +15.4%.

Flowserve Corporation (FLS - Free Report) has an Earnings ESP of +3.58% and a Zacks Rank of 2, currently.

Zebra Technologies Corporation (ZBRA - Free Report) has a Zacks Rank #2 and an Earnings ESP of +0.81%, at present.