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Will High Volumes Aid Caterpillar's (CAT) Q2 Earnings?
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Caterpillar Inc. (CAT - Free Report) is likely to register an improvement in both the top and bottom lines when it reports second-quarter 2023 results on Aug 1, before the opening bell.
Higher Volumes, Prices to Drive Q2 Results
Sales improvement across all of its segments, aided by higher volumes reflecting strong end demand in its markets and positive pricing impact, is likely to have boosted CAT’s overall sales performance. The consensus mark for total sales is $16.5 billion, suggesting growth of 15.8% from the prior-year quarter.
Higher sales, easing of supply-chain snarls and savings from cost control actions are expected to have negated the impact of inflated costs, driving the improvement in the quarterly earnings. The Zacks Consensus Estimate for quarterly earnings per share for Caterpillar is currently pegged at $4.51, which indicates growth of 41.8% from the year-ago reported figure.
Q1 Results & Surprise History
In the last reported quarter, Caterpillar delivered improved year-over-year performance in its revenues and earnings. The company beat the Zacks Consensus Estimate on both the metrics. CAT has a trailing four-quarter earnings surprise of 14.3 %, on average.
Per the Federal Reserve, for the second quarter of 2023, industrial production rose at an annual rate of 0.7%. Manufacturing output moved up 1.5% at an annual rate. In June 2023, the Institute for Supply Management’s manufacturing index contracted to 46%, following the readings of 46.9% in May and 47.1% in April. The New Orders Index has been in the contraction territory with its June reading of 45.6%. However, the figure has shown an improvement from 42.6% in May and is in-line with April’s reading of 45.7%.
Amid the persistent inflationary scenario, customers seem to be putting their reins on spending. This is likely to have impacted Caterpillar’s order levels in the quarter under review. Nevertheless, the company had reported a solid backlog of $30.4 billion at the end of the first quarter of 2023, which is expected to have contributed to the top-line growth in the second quarter of 2023.
On a positive note, the delivery performance of suppliers to manufacturing organizations was reported to be improving for the ninth consecutive month in June. The Supplier Deliveries Index registered 45.7% growth in June, compared with 43.5% in May and 44.6% in April. This indicates that the supply-chain issues, which have been plaguing the industry, are showing signs of easing.
However, inflated costs for raw materials and freight services are likely to have weighed on the company’s margins in the quarter to be reported. Higher selling, general and administrative (SG&A) expenses due to increased incentive compensation and elevated research and development (R&D) expenses to support the company’s growth strategy and new product development are expected to have aggravated the pressure on margins. We expect the company’s cost of sales to escalate 7.4%, SG&A expenses to increase 3.7% and R&D expenses to rise 22.3% in the second quarter.
Also, second-quarter margins are also likely have been impacted by seasonal factors. Nevertheless, savings from Caterpillar’s cost-control measures and restructuring actions are expected to have negated some of these setbacks and contributed to the margin expansion. Our model projects a 29% year-over-year increase in operating income to $2.55 billion. The operating margin for the second quarter is projected at 15.9%, compared with 13.8% in the year-ago quarter.
Segment Expectations
The Resource Industries segment’s second-quarter external sales are pegged at $3,449.5 million, suggesting year-over-year growth of 19%, as per our model. Sales growth is expected across all regions. High end-user demand for equipment and aftermarket parts as well as favorable price realization are expected to have led to the improvement. We expect volume and pricing to contribute 12% and 8%, respectively, to the revenue growth in the quarter.
The segment is expected to report an operating profit of $509 million, suggesting growth of 43% from the year-ago quarter’s figure of $355 million. The figure is, however, expected to be lower than the first quarter of 2023, owing to seasonal patterns.
We project the Construction segment’s external sales to be $6,553 million, indicating growth of 7% from the year-ago quarter, The uptick is likely to have been driven by improvement in sales across all regions. In North America, demand from both residential and non-residential construction is likely to have aided the performance.
Increased construction activity is expected to have driven machine demand in EAME and Latin America as well. Low construction demand in China due to the slowdown in the property sector is likely to have been offset by higher demand in other regions of Asia Pacific. We expect volume and pricing growth of 3% and 6%, respectively, for the segment in the quarter.
The Construction segment’s operating profit is projected at $1,146 million, indicating year-over-year growth of 16%. The figure will however be lower than the first quarter, reflecting normal seasonality.
For the Energy & Transportation segment, the estimate for external sales is $5,447 million, suggesting an improvement of 17% from the prior-year reported figure. Volume growth is projected at 15%, reflecting the solid demand across all applications and regions. Pricing is expected to contribute 4% to the sales growth.
The estimate for the segment’s operating profit is pegged at $1,175 million, suggesting a 78% improvement from the year-ago reported figure. Operating profit will likely to be higher than the first quarter, reflecting the ongoing strong demand.
What Our Model Unveils
Our proven model doesn’t 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. That is not the case here, as you will see below. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for CAT is -4.64%.
Zacks Rank: The company currently has a Zacks Rank of 2.
Price Performance
Shares of the company have gained 41.8% in the past year, compared with the industry’s 42.1% growth.
Image Source: Zacks Investment Research
Stocks Poised to Beat Earnings Estimates
Here are some Industrial Products stocks, which according to our model, have the right combination of elements to beat on earnings in their upcoming releases.
The Zacks Consensus Estimate for ENS’ fiscal first-quarter earnings is pegged at $1.64 per share, suggesting a year-over-year improvement of 42.6%. The company has a trailing four-quarter surprise of 9%, on average.
AptarGroup, Inc. (ATR - Free Report) , scheduled to release earnings on Jul 27, has an Earnings ESP of +1.77% and a Zacks Rank of 2.
The Zacks Consensus Estimate for ATR’s earnings for the second quarter is pegged at $1.13 per share. The company has a trailing four-quarter surprise of 6.4%, on average.
Eaton Corporation plc (ETN - Free Report) , set to release earnings on Aug 1, has an Earnings ESP of +0.18% and a Zacks Rank of 2.
The consensus estimate for ETN’s earnings for the second quarter is pegged at $2.11 per share. The company has a trailing four-quarter surprise of 2.5%, on average.
Image: Bigstock
Will High Volumes Aid Caterpillar's (CAT) Q2 Earnings?
Caterpillar Inc. (CAT - Free Report) is likely to register an improvement in both the top and bottom lines when it reports second-quarter 2023 results on Aug 1, before the opening bell.
Higher Volumes, Prices to Drive Q2 Results
Sales improvement across all of its segments, aided by higher volumes reflecting strong end demand in its markets and positive pricing impact, is likely to have boosted CAT’s overall sales performance. The consensus mark for total sales is $16.5 billion, suggesting growth of 15.8% from the prior-year quarter.
Higher sales, easing of supply-chain snarls and savings from cost control actions are expected to have negated the impact of inflated costs, driving the improvement in the quarterly earnings. The Zacks Consensus Estimate for quarterly earnings per share for Caterpillar is currently pegged at $4.51, which indicates growth of 41.8% from the year-ago reported figure.
Q1 Results & Surprise History
In the last reported quarter, Caterpillar delivered improved year-over-year performance in its revenues and earnings. The company beat the Zacks Consensus Estimate on both the metrics. CAT has a trailing four-quarter earnings surprise of 14.3 %, on average.
Caterpillar Inc. Price and EPS Surprise
Caterpillar Inc. price-eps-surprise | Caterpillar Inc. Quote
Factors to Note
Per the Federal Reserve, for the second quarter of 2023, industrial production rose at an annual rate of 0.7%. Manufacturing output moved up 1.5% at an annual rate. In June 2023, the Institute for Supply Management’s manufacturing index contracted to 46%, following the readings of 46.9% in May and 47.1% in April. The New Orders Index has been in the contraction territory with its June reading of 45.6%. However, the figure has shown an improvement from 42.6% in May and is in-line with April’s reading of 45.7%.
Amid the persistent inflationary scenario, customers seem to be putting their reins on spending. This is likely to have impacted Caterpillar’s order levels in the quarter under review. Nevertheless, the company had reported a solid backlog of $30.4 billion at the end of the first quarter of 2023, which is expected to have contributed to the top-line growth in the second quarter of 2023.
On a positive note, the delivery performance of suppliers to manufacturing organizations was reported to be improving for the ninth consecutive month in June. The Supplier Deliveries Index registered 45.7% growth in June, compared with 43.5% in May and 44.6% in April. This indicates that the supply-chain issues, which have been plaguing the industry, are showing signs of easing.
However, inflated costs for raw materials and freight services are likely to have weighed on the company’s margins in the quarter to be reported. Higher selling, general and administrative (SG&A) expenses due to increased incentive compensation and elevated research and development (R&D) expenses to support the company’s growth strategy and new product development are expected to have aggravated the pressure on margins. We expect the company’s cost of sales to escalate 7.4%, SG&A expenses to increase 3.7% and R&D expenses to rise 22.3% in the second quarter.
Also, second-quarter margins are also likely have been impacted by seasonal factors. Nevertheless, savings from Caterpillar’s cost-control measures and restructuring actions are expected to have negated some of these setbacks and contributed to the margin expansion. Our model projects a 29% year-over-year increase in operating income to $2.55 billion. The operating margin for the second quarter is projected at 15.9%, compared with 13.8% in the year-ago quarter.
Segment Expectations
The Resource Industries segment’s second-quarter external sales are pegged at $3,449.5 million, suggesting year-over-year growth of 19%, as per our model. Sales growth is expected across all regions. High end-user demand for equipment and aftermarket parts as well as favorable price realization are expected to have led to the improvement. We expect volume and pricing to contribute 12% and 8%, respectively, to the revenue growth in the quarter.
The segment is expected to report an operating profit of $509 million, suggesting growth of 43% from the year-ago quarter’s figure of $355 million. The figure is, however, expected to be lower than the first quarter of 2023, owing to seasonal patterns.
We project the Construction segment’s external sales to be $6,553 million, indicating growth of 7% from the year-ago quarter, The uptick is likely to have been driven by improvement in sales across all regions. In North America, demand from both residential and non-residential construction is likely to have aided the performance.
Increased construction activity is expected to have driven machine demand in EAME and Latin America as well. Low construction demand in China due to the slowdown in the property sector is likely to have been offset by higher demand in other regions of Asia Pacific. We expect volume and pricing growth of 3% and 6%, respectively, for the segment in the quarter.
The Construction segment’s operating profit is projected at $1,146 million, indicating year-over-year growth of 16%. The figure will however be lower than the first quarter, reflecting normal seasonality.
For the Energy & Transportation segment, the estimate for external sales is $5,447 million, suggesting an improvement of 17% from the prior-year reported figure. Volume growth is projected at 15%, reflecting the solid demand across all applications and regions. Pricing is expected to contribute 4% to the sales growth.
The estimate for the segment’s operating profit is pegged at $1,175 million, suggesting a 78% improvement from the year-ago reported figure. Operating profit will likely to be higher than the first quarter, reflecting the ongoing strong demand.
What Our Model Unveils
Our proven model doesn’t 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. That is not the case here, as you will see below. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for CAT is -4.64%.
Zacks Rank: The company currently has a Zacks Rank of 2.
Price Performance
Shares of the company have gained 41.8% in the past year, compared with the industry’s 42.1% growth.
Image Source: Zacks Investment Research
Stocks Poised to Beat Earnings Estimates
Here are some Industrial Products stocks, which according to our model, have the right combination of elements to beat on earnings in their upcoming releases.
EnerSys (ENS - Free Report) , set to report earnings on Aug 9, has an Earnings ESP of +8.32% and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ENS’ fiscal first-quarter earnings is pegged at $1.64 per share, suggesting a year-over-year improvement of 42.6%. The company has a trailing four-quarter surprise of 9%, on average.
AptarGroup, Inc. (ATR - Free Report) , scheduled to release earnings on Jul 27, has an Earnings ESP of +1.77% and a Zacks Rank of 2.
The Zacks Consensus Estimate for ATR’s earnings for the second quarter is pegged at $1.13 per share. The company has a trailing four-quarter surprise of 6.4%, on average.
Eaton Corporation plc (ETN - Free Report) , set to release earnings on Aug 1, has an Earnings ESP of +0.18% and a Zacks Rank of 2.
The consensus estimate for ETN’s earnings for the second quarter is pegged at $2.11 per share. The company has a trailing four-quarter surprise of 2.5%, on average.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.