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This Is How Caterpillar Just Blew Away Q3 Earnings
Those who have been following Caterpillar actual top-line performance know that things for the industrial bellwether have been going from bad to worse, with not only retail sales declining across the globe, as documented here previously, but with the current stretch of declining global retail sales now longer than during what was seen during the Great Recession.
And yet, moments ago, CAT, which is a major DJIA component, just reported blowaway EPS of $1.72, far above the $1.35 expected. How did it achieve this stunning number which has pushed DJIA futures higher by almost half a percent?
Simple: first there was the usual exclusions, with "restructuring costs" adding back some $0.09 to the bottom line number.
But the punchline was this: "In addition to the profit improvement, we have a strong balance sheet and through the first nine months of the year, we've had good cash flow. So far this year, we've returned value to our stockholders by repurchasing $4.2 billion of Caterpillar stock and raising our quarterly dividend by 17 percent," Oberhelman said."
And here is just how the surge in buyback activity looked in comparison to Q3 2013...
... and since the start of 2013:
One can only assume the collapse in CapEx spending is because the company is so enthused about its global growth prospects.
But wait, there's more, because another reason why the stock is soaring is because CAT actually boosted EPS guidance despite the ongoing retail sales collapse. To be sure, CAT did not boost revenue guidance, and "The company now expects 2014 sales and revenues to be about $55 billion, the middle of the previous outlook range of $54 to $56 billion."
What it did do was say that "with 2014 sales and revenues of about $55 billion, the revised profit outlook is $6.00 per share, or $6.50 per share excluding $450 million of restructuring costs. That is an improvement from the previous profit outlook of $5.75 per share, or $6.20 per share excluding $400 million of restructuring costs at the mid-point of the previous sales and revenues outlook range of $54 to $56 billion. The improvement in the profit outlook is a result of our continuing focus on execution and cost control, favorable currency impacts and a favorable tax item that occurred in the third quarter."
Actually no. The improvement is the result of a surge in current and upcoming buybacks.
Recall: "As previously announced, the company repurchased $2.5 billion of Caterpillar common stock during the third quarter of 2014. This repurchase is part of the $10 billion stock repurchase authorization approved by the Board of Directors in the first quarter of 2014."
In other words, expect about $2.5 billion of stock buybacks per quarter, reducing the company's outstanding share count, and thus boosting its Earnings Per Share number.
What else did CAT say:
Despite cautious optimism for improved global economic growth, significant risks and uncertainties remain that could temper growth in 2015. Political conflicts and social unrest continue to disrupt economic activity in several regions, in particular, the Commonwealth of Independent States, Africa and the Middle East. The Chinese government's push for structural reform is slowing growth, and the ongoing uncertainty around the direction and timing of U.S. fiscal and monetary policy actions may temper business confidence. As a result, our preliminary outlook for 2015 expects sales and revenues to be flat to slightly up from 2014.
"At this point, our view of 2015 sales and revenues isn't significantly different than 2014. Our order backlog was up a little in the third quarter and was slightly higher than at this point last year. We're hopeful that economic growth will improve in 2015, but are mindful of the uncertainties and risks. We have continued to improve operational execution, and if we see more positive economic momentum, we believe we're well-positioned to respond and deliver for our customers and stockholders," Oberhelman added.
So much more buybacks. Because in the new normal, if you can't grow, you just buy your way to growth. On margin.
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A win is a win. Even when you cheat.
If there was no penalty for using drugs in sports, everyone would do it.
Oh wait...
all these buybacks are foolish: when the whole market crashes they will be the biggest losers. and of course, it will mean alot of supposedly strong businesses like CAT will no longer be in business, but that's the risk they take trying to play nice with a fed that couldn't less about them.
But doesn't it create bigger bonuses in the meanwhile? The actions approved by the Board of Directors, duh.
This is better than Oprah.
Look under your chairs, executives!
And a bonus for you! And a bonus for you! And a bonus for you! etc. etc. etc.
Wallstreet convinces companies to borrow money from them to buy their own stock, reassuring them that the Fed has their back the whole time. Then, once the sheep are in the pen, the slaughter starts. Company executives are complicit because they get bonuses and when it suddenly becomes evident that the Fed isn't backstopping any more they can sell all their insider stuff. Wallstreet owns CAT board. Sell CAT now or get slaughtered by Wallstreet.
CAT may crash, but will be bailed out in some manner. They were bailed out last time, and will be bailed out again. Did you not notice the pyramid in their logo? Hasn't always been there, but is now as the bankers centralize control over the international corporations.
But, your point is taken. GM common shareholders were slaughtered.
well hey, at least CAT has "hope"...
Um, the buybacks are about execs getting their bonuses and cashing in their stocks at high prices. The losers will be those who bought into stock markets being legitimate investment tools.
Given these charts, how can institutional investors not see this to pull their money out?
You've obviously never met an institutional investor. Hard to see clearly after the morning bottle of Jack and sniffing a line off some escort's arse.
ZH snob ~ "all these buybacks are foolish"
oh yes they are
I read the CAT release all the way through (who does that now-a-days)...not one mention of how many shares they bought at what price. Since they use a weighted average in their reporting one can't figure the exact amount bought and at what price. However it doesn't take a genius to look at share price in Q2 and see that the price closed lower yesterday than it did all Q3. Clearly they paid higher price for shares. One can imagine they will buy even more the quarter to keep the game going. However one only needs to look at IBM to see what happens once the music stops. Will be ugly for many. I am waiting for the day when the sales desks are putting forward lists of short candidates based on the amount of share repurchases done during 2013/2014/2015.
Capital misallocation at its best here.
Not foolish... crazy like a fox. As I've been saying for years -- management manages for management, NOT the shareholders.
This is both correct and incorrect. They, the company is fucked, they that RUN THE COMPANY are not. The smart guys are lining their pockets and working on an exit strategy that won't land them in jail.
ITS THE FED'S QE THATS MAKING BUYBACKS POSSIBLE !!!
my best friend's mother makes $80 /hr on the internet . She has been out of a job for seven months but last month her check was $12348 just working on the internet for a few hours. you can try this out... YelpTrade.com
You state that she makes $80 an hour which means that she would have to work almost 157 hours to get that cheque for $12348 for the month.
But that calculation contradicts you statement that she works only a few hours on the internet.
So which oneis right? A few hours or 157 hours?
Just as long as she is buying back her own shares....who cares?
math, not even once. lmFao
... Backpage ?
Share buybacks... cards/pieces going back into the box?
Must be bullish
Another IBM Mirage
Selling Mad Max inspired collector vehicles?
I keep asking myself how it makes sense to buy back stocks at all time highs.....Is it too early to drink yet?
These days it never is.
It's simply looting. But any remaining shareholders fully deserve what they get.
Its 2:37 in Belgrade, just don't waste your time looking for a properly mixed drink.
Doug Cass has just clled this out on CNBC can't beleive they have mentioned this
Really frightening...
1. Be cozy with your provider banks
2. Get 1% loans of cheap money from said banks under the auspices of providing jobs
3. Use said money to buyback stock and keep the illusion of growth flowing through media channels
4. Sales continue to decline and spigot from banks drys up
5. All companies "agree" to dump all their bad news in a quarter or 2 eviscerating the PPS
6. Banks buy into the lower share PPS and turn spigots back on.
7. Earnings jump
Wait, didn't Caterpillar do $7.5 BILLION in stock buybacks???
Is that not corporate debt???.. Is that on their balance sheet? WTF
borrow the money at a percent or two, and you can keep that going for a while
they just need to borrow another $60B and they can buy the rest of the shares outstanding. the new normal.
This is called eating your corporate seed corn. There is no tomorrow, just next quarter.
I think that sums it up, CD.
Eating ones own leg.
Yes, it is, CD. I'm just trying to avoid eating my own seed corn. That means I keep working, just like I always have. "Retirement" is a mirage, especially since the effective negative interest rates on "savings". Nothing is gonna happen until the reg'lar folk realize that there is no place to hide from reality. By that time I hope to be far from the crazy crowd and off the beaten path.
Wow CNBC actually giving the CEO a hard time about this, aren't you doing exactly what IBM have been doing ! that has to be the first
And it will get worse and worse.
As I predicted in May 2013, world would start to reduce raw material supplies to the west. Saudis have already started reducing oil supply and lowering the price simultaneously.
Those billions of barrel held as collateral by big banks uber rehypotheticated to for repo and derivatives will have to dump now.
Supply chains are breaking down, precisely due to QE.
East is producing and supplying less or West is buying and consuming less?
Economics 101
Demand is infinite
Supply is scarce
Wants, dude, NOT demand!
Demand requires ability and willingness to pay,
Which is diminishing in the West due to unemployment, pay cuts and excessive debts.
Hence, people still want that new gadget and car but CANNOT DEMAND it as they dont have means to pay for it.
Hence West is not buying raw materials for production form the East.
HENCE East is reducing supplies AND giving DISCOUNTS on top!
http://hoisingtonmgt.com/pdf/HIM2014Q3NP.pdf
Excessive debt is what is causing this and all previous DEPRESSIONS. You can put lipstick on a pig but it is still depressing...
Try explaining that to some folks around here!
Also, if all the debts are to be settled at any given point in time, there is NOT ENOUGH money, paper or electronic, to do that!
Hence default is inevitable, or war.
Efffective demand. and if Saudis could lower price and supply; by that reasoning if they stopped producing the price would drop to ero. Guy is an idjit
More shares owned by CAT and less for the general public...Less jobs provided by CAT, and less for the general public. So much for the "wealth effect" huh Yellen? That growing "wealth gap" must be a real frickin mystery...
Inventory not moving from Baton Rouge into Texas along I-10
Dealer lots full not to mention the used heavy equipment lots and auction lots...
Channel stuffed
I am going insane being unemployed
They ever find that Jet?????
It sucks to be the first ones but... Have heart bro, we will soon be joining you.
What jet? (sarc)
BTW what about the downed MH17 as well?
backpage!
He said “unemployed”. He’s got to ‘do more with less’. I say, fertilize the freebies within his neighborhood.
Any woman walking a dog alone is ripe for the plucking.
new normal - buyback is only way to survive. Dreamland
Must be band wagon for big company names with few letters: IBM, HP, CAT.
The reason is simple - rise of competition.
http://en.wikipedia.org/wiki/Chelyabinsk_Tractor_Plant
It seems closer to a dead CAT bounce than a booming economy.
Is there any company out there willing yo do a buyback for GOLD ???
CAT's 'earnings' are as fake as the 'market'
I remember way back in 2011 that all the pundits and sell side analysts were saying organic growth had to take over for the stocks to climb. So much for that idea. Share buybacks approved by the board of directors that benefits the board of directors. I wonder how many of these directors serve on other boards. No wonder they don't teach history in schools anymore. This isn't going to end well at all. The amount of greed that the FED and bankers have unleashed is truly disgusting. Public money for private corporation. Caterpillar will be the next GM.
Rewarding members of the Corporate suites, based upon stock price performance, became standard by 1990. During the 1960s and 1970s, the stock market wasn't perfoming so well. So, back then the incentives were focused on changes to operating profits, retained earnings, and operational efficiency. With the FED commited to spiking the stock market and bailing out the big banks forever, rewarding executives based upon stock price will remain standard practice. And the financial media will continue to praise such companies and their executives who borrow to buy back shares, until such time that it doesn't work.
But to be fair, this tactic of buying back shares with borrowed money makes a lot of sense from a myopic point of view. If a company wants to maintain a good dividend yield -say something over 2.5%- and the cost to borrow funds is less than that, the company is actually improving corporate cashflow by reducing the number of shares for which it must pay dividends. Spreading operating cashflow over fewer shares outstanding also supports the share price.
It is self-perpetuating.
I understand what you are saying, but I thought the idea was to sell products, not create more debt. If they were retiring old debt at higher costs it would make sense but they're not. Growth is no existent so the only way to make this pig look good is to borrow or use today's money for the major shareholders. I know its easier to borrow than create organic growth, but the reality is, for most corporation bankruptcy, without cheap money is just another downturn away. Or they issue those shares bought at $90-100 at $20-30. Its all one big ponzi scheme.
Their game does look dangerous to me. Borrow money cheap to buy expensive shares that then become the collateral for that loan. In my opinion, share prices are now going to need to be defended more than ever. When this all ends, it's going to be a sight to behold.
This is the ultimate sell sigal if I ever saw one.
Obviously the 'Board' are not traders. What ever happened to "buy low, sell high"? This is a Wiley Coyote set-up where Wiley is at the 'in mid air' phase and hasn't looked down yet. Let's have all the DJIA components do this and watch what happens at the next dip. The entire DJIA can go bankrupt in one swell foop.
Watch for the 'Nuculear' thump at the bottom of the canyon.
well the board and 'traders" do have two things in common- they're both fucking worthless. and i wouldnt piss on them if they were on fire
Another river of cash diverted for the sake of "we've returned value to our stockholders by repurchasing $4.2 billion of Caterpillar stock and raising our quarterly dividend by 17 percent" When you can't do busisness, do the books, same as it ever was. Just like the fall in oil prices has nothing to do with demand. Shiiittttt!
Tearing off the siding to heat the house, but price doesn't seem to care.
What kinds of bonds did they issue in 2014? Seems that everyone was selling debt with the low interest rates. When rates rise (choke, cough...) this is going to hurt a lot of companies but then again, bonuses will not have to be returned. Sorry pension funds, you're screwed.
So basically, whats driving the markets is loose monetary policy, non gaap earnings and buybacks.
companies like CAT basically become utilities as they are cash cows since they are not growing. The PE for a dividend stock that does not grow should be single digit--that describes the DOW pretty much.SPX too. Small caps--a lot of them do not even have revenues.
When the great awakening occurs the smart investors will already be on the sidelines. But in what? The dollar will crash when teh market crashes and when bonds, treasuries crash. Gold is a barbelic relic.
Real estate sucks.
Where does one put money--maybe real money?
That's right! No more expensive toys for the big boys to go "vroom, vroom" on projects. Looking at the charts, the whole company is a bulldozer of paper.
I'm in the process of putting everything I can into myself, and in things that will allow me to be more self-sufficient/less dependent on market whims. I'm a single dad with two daughters, so this is taking awhile.
I downsized my house considerably after my divorce by moving into a foreclosed property way out in the country on a small acreage. It cut my mortgage payment in half. I'm on my own well and septic, and don't have any municipal utilities. This property is way off the beaten path. I'm on my own for any emergency in real terms. I'm fine with that actually.
Next up is preparing for storms/power outages. First purchase will be a generator and transfer switch. FEMA recently concluded that I live in one of the most dangerous places in North America with regards to weather. I've seen several tornadoes, and have known people killed by them. They are no laughing matter. You can be without power for weeks in rural areas, especially after ice storms.
After that, I'll build a storm shelter that'll also function as a root cellar. This is where my long term storage food will reside. I have enough to be able to bug in for about a year for me and my kids. This also where all of my canned stuff will reside. I can my own food. I also will have a pretty large garden this next spring, and will can plenty of stuff that I grow.
I'm almost done fencing my acreage to help keep coyotes out. I can't have laying chickens and turkeys until I complete the fencing. So far, my goats have been fine, but they act like dogs anyways (except the goats will drink beer right from the bottle like a person). I'll be in organically grown chicken eggs by late next Summer/Early Fall. I'll also be selling some farm grown, organic heritage turkeys by next Thanksgiving. Have you priced these kinds of turkeys for Thanksgiving?
I'll be starting 3 hives of honeybees in the Spring. I probably won't get much the first year, if anything at all. I've been planting clover and chicory all over my place already, so hopefully this will help the bees a little next year. It'll damn sure attract the deer, and I'll probably be able to hunt from my bedroom window. My daughters help me butcher deer already, and we can take one apart in about an hour and have it ready to be turned into summer sausage (except the backstrap of course) in no time. I can't wait to make mead from my own honey.
You get the idea.
good luck!
I smell another round of TBTF bailouts coming. The top execs will hold the trigger button to self destruct if the government doesn't give them bailouts.
The government will just print trillions more until there's a currency crisis. You can already see the future.
Debt to infinity.
And why your Social Security checks will be useful for about a week's worth of groceries, if you're lucky.
I wonder how that guy who blogged yesterday at this site about how it’s time to short stocks is doing today? He undoubtedly looked at CAT and their dismal sales, as a likely candidate. If so, today, he is considering suicide. He is fighting the Fed and TRILLIONS of dollars that have to pour into something, anything. Share buybacks will keep happening thanks to loose credit. It doesn’t matter how bad their numbers are, all that matters is the ‘Fed effect’. It is not illegal, it is just another tool the Fed offers the corporate barons to improve their lives and of course, will trickle-down to the little people in the form of soaring 401k’s, etc. Win-Win.
If you think there will be a revolt against the Fed, think again. “Damn Fed Bank keeps pushing my stocks higher…I hate them!” Right..
Having fun recently reading ZH for the truth and comparing it to how they report it on Fox Business News....CAT stock up over 4% today 'based on higher than expected profits" according to the fugly economic goddess Maria Bartiromo.
I used to shake my head at my parents who rely almost solely on Fox and FBN for almost all of their news. They think Bill O'Reilly is the smartest man in the world and it was a struggle to visit them and not laugh out loud at how they'd nod their heads throughout his entire show. Most of the time, I half expected them to break out in "Hallelujah!" over some of this comments.
I digress....thank you ZH for reporting the truth and the real WHY's of what is going on with our world.
This market is fierce
Wonder what EPS would have been without the buybacks.
60% of all SPX operating earnings are used for buybacks compared to 40% in 2001. Companies are liquidating over 10+ years. Thats why prices are so high, there are big buyers. But w little reinvestment, revenues first then cashflow declines, watch for a reduction in buyback levels for the mega giants, thats the caution signal.
Nope. as long as they can issue stocks, the fed can print, and demand is in the shitter this can go on forever. Or at least until someone brings gun to the knife fight.
Economic alchemy! For months, we've beens seeing recurring weak sales at Cat, but their earnings come out, and it's blissful jubilance! No, iit's economic alchemy, and Wall St is so blinded by Fed free money, that they ignore the real data (lousy fundamentals) and drive stocks up 275 points.
These companies buying back their own stock, neglecting future growth by neglecting investment today in favor for stock buybacks will not end well when interest rates rise. Interest rates are about time. Interest rates are time preference. All abandonment of future growth to present day satisfaction of share holders versus investment to increase profits in the future. I imagine all this will end disasterously. What happens when these companies sell these stocks instead of buying them? They dramatically flood the stock market with more stocks, and have no capital investment that produced more return. Bubble, bubble on the stock chart, which one is the biggest of them all?.... These companies are borrowing against future growth and using cheap money to fund it today at the expense of tomorrow.
China* bought treasuries
Fed gave free money to {US corporation}
{US corporation} buybacked its way green
====================
China bought {US corporation}
* China = 1% cabal "ofshore" operation, not the Chinese muppets
this is agravating, i always thought cat, the same as years gone past ge would shoot straight, but seems they've surrendered to nationalism, leaving behind capitalism.
i'm sure soon we'll be getting a list of board-members, and high-ranking officals at cat selling their shares.
What was net profit yr/yr and compared to last qtr? No news release had these numbers only per share.
What we have now is corporations turning into the government. This is bad news indeed. We all know how the government turned out. We are giving away the equivalent of the Apple Corporation each year in trade deficits so stockholders and corporate pigs can accumulate cash while the hole time hiding cash overseas? This country went ass backwards in the 70's.