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Why Caterpillar Just Blew Away Earnings Expectations

Tyler Durden's picture




 

As we reported yesterday, the "reason" why CAT stock price hit its 2 year high is because as the company reported yesterday, retail sales by dealers had tumbled to the lowest level in over a year.

 

To be sure, nobody expected a blowout number at the CAT topline... and nobody got one either: with Q1 2014 revenue of $12.493 billion, unchanged from the $12.484 billion year ago, there was no sales growth to talk of. In fact, if one merely looks at the Net Income line, one won't see much if any difference to talk about, with both Q1 2013 and 2014 profit reported at $0.9 billion.

And yet, EPS soared from $1.31 to $1.44, which using some more non-GAAP magic, one can get to $1.61 when adding back recurring, non one-time (thank you Alcoa and JPM) restructuring charges.  This compares to EPS estimates of $1.23. 

So just how did CAT succeed in boosting EPS even as its top line was flat at best, and when in reality this is likely just a deferred revenue timing gimmick considering global retail sales in Q1 have crashed compared to a year ago?

The answer, which we will merely show without explaining as we have covered this topic time and time and time again, is shown in the chart below (hint: CapEx -50% offset by Buybacks rising by #DIV/0!).

Thank you stock buybacks and other shareholder friendly activities which reward activists at the expense of the company's future growth prospects and, of course, its employees. Because we should also note that CAT had 116,579 total full time employees in Q1, down 8,295 from 124,874 a year ago.

But at least the stock is soaring.

 

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Thu, 04/24/2014 - 08:24 | 4689922 GetZeeGold
GetZeeGold's picture

 

 

Trix are not just for kids!

Thu, 04/24/2014 - 08:33 | 4689947 Looney
Looney's picture

Dead CAT bounce ;-)

Looney

Thu, 04/24/2014 - 08:37 | 4689963 negative rates
negative rates's picture

Oil change. 

 

Oil change man.

Thu, 04/24/2014 - 08:38 | 4689971 kaiserhoff
kaiserhoff's picture

If Mr. Yellen would free up the interest market, no one would buy this crappola.

Thu, 04/24/2014 - 08:48 | 4690014 Handful of Dust
Handful of Dust's picture

 

 

"There's never been a better time then now to buy a ...tractor."

 

... or is that a house?

 

I forget.

Thu, 04/24/2014 - 09:14 | 4690137 nuclearsquid
nuclearsquid's picture

whats wrong with share buybacks?  You purchase the stocks now, at wildly overvalued levels, and then later, when the SHTF, you reissue them at pennies on the dollar.

WINNING!

Thu, 04/24/2014 - 11:02 | 4690645 Emergency Ward
Emergency Ward's picture

"Ahem, Uh, the notwithstanding upstanding aforesaid stock buyback shares will become treasury stock certificates which will be used for corporate purposes such as executive compensation, ass-wiping, hostile takeovers and other activities approved by the Board of Directors."

Thu, 04/24/2014 - 16:08 | 4690811 TruthInSunshine
TruthInSunshine's picture

The high tide of artificially suppressed yields on debt instruments thanks to ZIRP floats all share buyback bloats...err, boats.

p.s. - The banks & Wall Street shysters tanks Mrs. Debtfire for today's 3.52 billion USD of prime-the-pump POMO.

Thu, 04/24/2014 - 09:30 | 4690228 tempo
tempo's picture

Dell played the same game 10 years ago and is now gone.

Thu, 04/24/2014 - 08:24 | 4689927 jbvtme
jbvtme's picture

you moth be kidding me?

Thu, 04/24/2014 - 08:24 | 4689928 fonzannoon
fonzannoon's picture

Apple did a huge buyback as well right?

http://www.zerohedge.com/news/2014-04-17/great-stock-buyback-craze-final...

so what's the deal?

Thu, 04/24/2014 - 08:27 | 4689936 tonyw
tonyw's picture

"at the expense of the company's future growth prospects and, of course, its employees."

well maybe not all employees, i'll bet you senior management have options that are improved with share buybacks.

 

Thu, 04/24/2014 - 11:35 | 4690788 SokPOTUS
SokPOTUS's picture

Ding-ding-ding!

Thu, 04/24/2014 - 08:27 | 4689937 snr-moment
snr-moment's picture

So, when I own the last remaining share................Utopia!!!!!

Thu, 04/24/2014 - 08:28 | 4689938 Flux
Flux's picture

Buffet ftw!

Thu, 04/24/2014 - 08:35 | 4689960 BandGap
BandGap's picture

Speaking of the Anacle of Omaha -

http://finance.yahoo.com/news/buffett-open-future-housing-finance-040102459.html

Something wicked this way comes.

Thu, 04/24/2014 - 10:04 | 4690404 headhunt
headhunt's picture

Buffett does not like to lose money and will expect that loans only go to credit worthy individuals - or something crazy like that.

Fri, 04/25/2014 - 00:14 | 4693891 RichardParker
RichardParker's picture

From your link:

Buffett said that the government could act as an insurer oflast resort in a new system that involves private companiestaking initial losses, which is the structure that has beenproposed in the Senate.

"I think government has to play a part in housing,"Buffett said.

 

Buffett was was fairly honest back in '08 when he admitted he never would have dumped billions of his own money into GS, GE et. al. WITHOUT GOVERNMENT ASSURANCES. 

I wonder how many billions can he get in subsidies for this crony socialism angle on housing.

 

Thu, 04/24/2014 - 08:28 | 4689941 Sudden Debt
Sudden Debt's picture

exactly what all the big companies did just before the crash.

Than they all ran out of money and had to beg to the state for free taxmoney to save their ass after they pulled record high bonusses...

rinse repeat I guess...

Thu, 04/24/2014 - 08:38 | 4689968 negative rates
negative rates's picture

We all can't run out of money now, can we?

Thu, 04/24/2014 - 11:36 | 4690792 SokPOTUS
SokPOTUS's picture

Nope.  Still have checks left...

Thu, 04/24/2014 - 09:41 | 4690273 firstdivision
firstdivision's picture

The death of sustainable long-term growth died when shareholders were put ahead of stakeholders. 

Thu, 04/24/2014 - 14:22 | 4691712 Seer
Seer's picture

"The death of sustainable long-term growth died"...

"Sustainable" and "growth" are NOT compatable!  Yes, you mention "long-term," which is good in that you're attempting to put some constraint on the equation (rather than some notion of "forever"), but unless you're able to state HOW LONG that is then "long-term" is no more than a meaningless placeholder.  No slam to you, just that we need to better understand what we're dealing with if we're ever going to figure on any true "solution."

Thu, 04/24/2014 - 08:34 | 4689957 fzrkid
fzrkid's picture

$12.493 billion is no chump change, why does the market put so much pressure on a company to always earn more than last year?!?!?!?!?! CAT could even spread some of those profits to its employees and still have tons of loot coming in..

 

Why dont these media schills make a bigger story about the shrinking wages for employees instead of cheerleading higher EPS through buy backs made possible by aunti yellen (the bernanke, grandpa greenspan) and ZIRP!!>!>!>!>!>!>!

Thu, 04/24/2014 - 08:39 | 4689972 BandGap
BandGap's picture

I agree, but this isn't about the employees of even the future of this company. It's "what have you done for me lately" each and every time around.

Eventually there will be ten asses and three chairs when the music stops.

Thu, 04/24/2014 - 08:44 | 4689997 snr-moment
snr-moment's picture

If it makes $10 next year, wont it's net worth still be increasing?

Thu, 04/24/2014 - 12:42 | 4691082 Seer
Seer's picture

Sure, but that would really start bending the up-and-to-the-right curve (down).  Trends...

Thu, 04/24/2014 - 12:48 | 4691100 Seer
Seer's picture

"why does the market put so much pressure on a company to always earn more than last year?"

Because "growth" is what keeps you from drowning/going under.

"Why dont these media schills make a bigger story about the shrinking wages for employees"

Because in the overall scheme of things it makes no difference.  Unless, that is, those employees could turn around and buy products from CAT itself.  Always will wages be "too high" AND (at the same time) "too low" (depends on who you talk to).  What the "markets" should really be interested in is in the demand for the products and services: that's the point of capital allocation (one that I agree with in theory).

Thu, 04/24/2014 - 21:36 | 4693495 fzrkid
fzrkid's picture

Growth or Profit?? In a world with finite resources it seems like it would make more sense to establish a reasonable profit go with it.

Maybe the earnings should be measured against inflation, a company could bring in tens of billions but if the value of those billions are near worthless it does not make that company any better off..

 

Equities are already trading at a premium to the true value of most companies so its not like a company with a relatively stable yearly profit would not see a rise in its share prices as buyers were comfortable with its ability to maintain that profit.

 

 

Thu, 04/24/2014 - 08:36 | 4689961 shankster
shankster's picture

Hmm?

Thu, 04/24/2014 - 08:40 | 4689978 Everybodys All ...
Everybodys All American's picture

The hollowing out of the American middle class continues at a record pace.

Thu, 04/24/2014 - 08:42 | 4689984 buzzsaw99
buzzsaw99's picture

don't worry, the activists will be gone well before the bankruptcy filing

Thu, 04/24/2014 - 09:16 | 4690155 farmboy
farmboy's picture

That are funnymentals. In a world were people have no clue on accounting but still make trading decisions this is a perfectly normal outcome, just ingnore until it can't be ignored.

Thu, 04/24/2014 - 09:18 | 4690167 TrustWho
TrustWho's picture

Eating your YOUNG.

This is so sick. We borrow from the future to enhance current consumption and reduce investment to enhance the facade of bottom line growth.

How can this be? Oh, we can point fingers, but everyone participating in this fraud is CORRUPT.

 

Thu, 04/24/2014 - 11:13 | 4690618 Emergency Ward
Emergency Ward's picture
 -- Funkadelic  "America Eats Its Young"

A luscious bitch she is, true.......
like all ho's is jealous of her own shadow
Who would sacrifice the great grandsons and daughters
Of her jealous mother
By sucking their brain
Until their ability to think was amputated
By pimping their instincts
Until they were fat, horny and strung-out
In her neurotic attempt to be queen of the universe
Who is this bitch?

Thu, 04/24/2014 - 11:34 | 4690782 TrustWho
TrustWho's picture

When I was young, I raised my own pigs. Sows (mother pigs) naturally eat the after-birth for the nutrition. One time, the sow did not stop with the after-birth and ate 8 of 10 of her new borns.

The last 6 years have made me reflect on this story and the nature of woman (trying to be more gender neutral). What makes an amoeba move? Humans can make fantastic tools, but have we really advanced beyond pigs and amoebas?

Thu, 04/24/2014 - 11:56 | 4690894 Seer
Seer's picture

Nature works in seemingly strange ways.  And while there's always the possibility that there's an odd-ball sow, chances are that she did what she did for a survival reason.  I haven't experienced any of this, but I've read plenty.  More people need to be exposed to what life is like on a farm, it can be quite humbling...

The bottom line is that it's about sustainable actions.  Anything can be made to look successful given a short enough timeframe.

Thu, 04/24/2014 - 13:55 | 4691521 TrustWho
TrustWho's picture

I thank God everyday for my farm experience and regret I failed to give my son the same.

I think common sense is derived from the land. I have know some smart people with the best educational pedigree, but none have the wisdom of an old farmer.

Thu, 04/24/2014 - 14:17 | 4691674 Seer
Seer's picture

Yeah, more and more I'm finding that I feel I can only trust those who are closest to the land.  I think that it's a matter of having to be more "grounded."  Not to say that there aren't stupid/bastard farmers running around, there are, but on the whole...

Thu, 04/24/2014 - 14:26 | 4691743 Seer
Seer's picture

"regret I failed to give my son the same."

Don't be too hard on yourself.  My dad provided me with the taste and I didn't find it all that appealing. Took me many years to have an appreciation: my dad got to realize it before he died, so I got to hear him brag about me being a farmer.  I feel that I am a more rounded person for having been able to circle the block...

Thu, 04/24/2014 - 16:32 | 4692356 TrustWho
TrustWho's picture

Seer,  When I told dad I would not return to the farm after finishing school because I wanted to see the world, I said I had no doubt when I am 50 there is no place I would rather be than the farm. This forecast has turned out to be very true.

Well I got to do business in Europe, South America and Asia I know I am more rounded, but through the process I got disconnected from the ground. Life is.

Thu, 04/24/2014 - 09:18 | 4690170 Its_the_economy...
Its_the_economy_stupid's picture

glad i didn't short this bitch after reading the last ZH CAT report

Thu, 04/24/2014 - 09:31 | 4690229 JackT
JackT's picture

Up is up and down is up in a world without gravity 

Thu, 04/24/2014 - 11:58 | 4690904 Seer
Seer's picture

Yeah, I don't know how much worse something can be w/o going tits-up.  And yet, here we are with the stock up some 3%.  I suppose that the markets see it as a good thing that CAT is working on going private...

Thu, 04/24/2014 - 09:29 | 4690221 Rising Sun
Rising Sun's picture

fuckin spending on the company

 

just buyback shares and executives make even MOAR

 

everyone's a winner....get it????

Thu, 04/24/2014 - 09:49 | 4690288 mayhem_korner
mayhem_korner's picture

 

 

Here's the math:

  • Adjusted for restructuring costs, earnings were down 7% from prior year ($880M in '13 to $825M in '14)
  • The stock buybacks reduced the number of shares outstanding by 14% (667M in '13 to 537M in '14)

Note: I am qualified to decipher corporate earnings statements because I have a degree in magic

Thu, 04/24/2014 - 09:50 | 4690324 headhunt
headhunt's picture

please use your magic on the price of gold and silver

Thu, 04/24/2014 - 10:27 | 4690494 KickIce
KickIce's picture

And even more ownership transfers to TPTB, who of course expect to be bailed out at taxpayer expense when the next crisis hits.

Thu, 04/24/2014 - 09:47 | 4690304 john milton
john milton's picture

cash for dumpers

Thu, 04/24/2014 - 10:13 | 4690443 Spungo
Spungo's picture

Gold is currently $1291.90 while silver is $19.77. Diving one into the other gives us a ratio of 65.346; therefore, gay sex causes earthquakes.

Thu, 04/24/2014 - 11:02 | 4690655 Seer
Seer's picture

I'd been mentioning this trajectory for quite some time.  That is, that CAPEX would be dropping for most due to margin compression.  It's the flashing red warning lights telling us that there's nothing seen on the horizon pulling things out of the slump.

I'd also stated that I felt that stock-buy-backs were a preservation tactic.  Imagine if you had a company that you really believed in (I'm speaking in general terms here, not CAT specific) and you had all these whip-sawing hedge funds trying to mess around with it, rather than trying to pull together for the long-term they're causing massive short-term instabilities that are most certain a threat to the long-term operation of the company: yes, there's most likely inefficiencies to clean up, but today's "investors" aren't really interested in that, they're interested in making a quick buck and they could care less if they leave a smoldering pile behind.  What do you do?  You buy back control.  So, in a way I see it making sense.

Economies of scale in reverse, however, is going to crush the shit out of everything anyway, making it all moot.

Thu, 04/24/2014 - 12:05 | 4690918 Chuck Knoblauch
Chuck Knoblauch's picture

duplicate

Thu, 04/24/2014 - 12:20 | 4691001 Seer
Seer's picture

Triplicate!

Thu, 04/24/2014 - 12:59 | 4691156 walküre
walküre's picture

CAT did not sell equipment in the magnitude to generate a 12 billion Dollar profit

This is bullshit. Don't believe a word they're saying. Where in the world would they have delivered the machinery and who in the world is shopping CAT quarter after quarter in this downturn economy?

The Chinese are stalling, mines are being mothballed and projects put on hold for a while now.

So, CAT show us who is buying the equipment over and over and over again in a global economy that's dead at best and shrinking at worst.

Thu, 04/24/2014 - 13:04 | 4691179 Seer
Seer's picture

"So, CAT show us who is buying the equipment over and over and over again in a global economy that's dead at best and shrinking at worst."

GM dealers?

Thu, 04/24/2014 - 13:52 | 4691497 walküre
walküre's picture

BLM would be my guess. Sounds like they've "struck a nerve" in the desert and need to setup shop.

You think CAT is dealer stuffing just like GM? Possibly. Ghost towns, ghost ships, ghost trucks, ghost Chevs...

Thu, 04/24/2014 - 14:30 | 4691771 Seer
Seer's picture

"You think CAT is dealer stuffing just like GM?"

If they're burning through raw inputs then something has to be coming out the other side of the factory doors.  And if nothing is coming out then that would suggest that they've switched to baking- cooking the books...

Thu, 05/01/2014 - 21:09 | 4692801 RMolineaux
RMolineaux's picture

They're selling equipment to the government of Israel so it can knock down more Palestinian houses.

Thu, 04/24/2014 - 14:28 | 4691757 Chuck Knoblauch
Chuck Knoblauch's picture

CAT is laundering drug money for the government.

 

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