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Resource Industries to Aid Caterpillar's (CAT) Q3 Earnings

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Caterpillar Inc.’s (CAT - Free Report) results have always been eagerly anticipated by investors as this manufacturing behemoth is considered an indicator of national and global economy. Further, speculations have been rife regarding the impact of tariffs and the ongoing U.S- China imbroglio on the company’s profits. The mining and construction equipment manufacturer has countered the impact of the tariffs by implementing price hikes and focusing on cost cutting. Benefits from these actions and positive momentum in its segments, particularly Resource Industries is likely to be reflected in its third-quarter results to be reported on Oct 23.
 
One-Year Price Performance
 
 
Notably, shares of Caterpillar have outperformed the industry in the past year,. The stock has gained 10% in comparison with the industry’s increase of 8%.
 
Momentum in Resource Industries Strong, Raises Hope for Q3
 
The Resource Industries segment caters to customers using machinery in mining, quarry, waste and material handling applications.  Products fall under three broad categories — surface mining, underground mining and material handling. In surface mining, Caterpillar competes with Komatsu Ltd. (KMTUY - Free Report) , Hitachi Construction Machinery Co., Ltd. , Deere & Company (DE - Free Report) . While in underground mining, the segment competes with Atlas Copco AB, Liebherr-International AG, Sandvik AB, Komatsu, among others.
 
Given that the mining sector represents nearly 70% of the segment’s revenues, it was hit hard by the mining slump triggered by a slowdown in China and excess supply. It suffered losses for six straight quarters before returning to profit in the first quarter of 2017. The segment has shown considerable improvement ever since. Resource Industries’ sales improved 38% year over year to $2.4 billion in the second quarter of 2018, aided by higher demand for equipment across all regions.
 
Per the Zacks Consensus model, sales for the segment are pegged at $2,423 million in the third quarter 2018. It is expected to log the highest year-over-year improvement among Caterpillar’s other segments — Construction (19%) and Energy & Transportation (26%) in the quarter to be reported. Favorable commodity prices are driving miners’ profitability which in turn is likely to boost higher equipment sales. Increased mine production and higher machine utilization will also lead to improved aftermarket parts sales. Per our Zacks Consensus Model, growth in Resource Industries will be led by the Asia Pacific region with projected growth of 39% for the quarter. This will be followed by North America which is expected to log sales growth of 28%. Both EAME and Latin America are anticipated to witness growth of 24%.
 
Resource Industries segment is expected to report an operating profit of $409 million, a jump 81% from the prior-year quarter, despite higher freight costs and impact of tariffs. Meanwhile, the Construction and Energy & Transportation segments are expected to report 23% and 28% rise in operating profits, respectively.  
 
Overall Earnings & Sales Expectations
 
The Zacks Consensus Estimate for total sales of $13.2 billion for the third-quarter indicates growth of 15.8% from the prior-year quarter. The Zacks Consensus Estimate for earnings is currently pegged at $2.83 for the third-quarter 2018,reflecting an improvement of 45% on a year-over-year basis. Favorable end markets and cost cutting actions will benefit results in the to-be-reported quarter despite material cost inflation and supply chain challenges.
 
Caterpillar Inc. Price and EPS Surprise
 
 
Caterpillar Inc. Price and EPS Surprise

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

Click here to know in details how all these segments will fare and the factors that will drive overall results in the third-quarter.

 

Currently, Caterpillar sports a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
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