Caterpillar Hits All Time High After Raising Guidance On Chinese Construction Boom

Tyler Durden's picture

As is customary for the heavy-industrial equipment manufacturer, Caterpillar yesterday reported its retail sales, one day ahead of earnings, and as we discussed, the number was solid with Caterpillar reporting the longest positive streak in retail sales going back 51 months.

It was also a hint as to what the Dow-member would report today for its second quarter earnings, which showed a surprisingly strong performance with CAT posting impressive Q2 Q2 EPS of $1.49, above the Est. $1.25, and revenue of $11.33Bn, also beating estimates of $10.89BN, both largely due to the ongoing Chinese construction boom as the company itself admitted.

"Our team delivered an impressive quarter. As demand increased, we continued to control costs and generated higher profit margins," said Caterpillar CEO Jim Umpleby. "While a number of our end markets remain challenged, construction in China and gas compression in North America were highlights in the quarter. Mining and oil-related activities have come off of recent lows, and we are seeing improving demand for construction in most regions."

But it was the company's aggressive upward guidance revision that has sent the stock, and the Dow, surging in the pre-market.

As the company said, "as a result of increased demand across many end markets and disciplined cost control, Caterpillar is raising its 2017 outlook" cautioning that "some risks remain in the outlook, including weakness in the Middle East and Latin America, as well as geopolitical and commodity risk."

Here is the new guidance:

  • CAT now expects FY revenue $42 billion to $44 billion, up $3 billion from the previous guidance provided in April, which was $38 billion to $41 billion, and well above the consensus estimate of $40.85BN .

Some more details from the press release:

In April 2017, Caterpillar provided an outlook range for full-year 2017 sales and revenues of $38 billion to $41 billion with a midpoint of $39.5 billion. The company is raising its full-year 2017 expectations for sales and revenues to a range of $42 billion to $44 billion with a midpoint of $43 billion.

 

For the full year of 2017, Caterpillar expects profit per share of about $3.50 at the midpoint of the sales and revenues outlook range, or adjusted profit per share of about $5.00. The previous outlook for 2017 profit was about $2.10 per share at the midpoint of the sales and revenues outlook, or adjusted profit per share of about $3.75. The company now expects to incur about $1.2 billion of restructuring costs in 2017. The outlook does not include potential mark-to-market gains or losses related to pension and other postemployment benefit (OPEB) plans.

 

"Given our performance in the first half of the year and current quotation and ordering activity, we are confident in raising our full-year 2017 outlook," continued Umpleby. "We remain focused on serving our customers, delivering strong operational performance and executing our ongoing restructuring activities. During the second half of 2017, we anticipate making targeted investments in initiatives that are important to our future competitiveness, including enhanced digital capabilities and accelerating technology updates to our products. We intend to do this without adding to the structural costs we've worked so hard to streamline. These investments will prepare us to take advantage of the growth opportunities ahead."

CAT also said it expects to make targeted investments during the second hald in initiatives that are important to "future competitiveness, including enhanced digital capabilities and accelerating technology updates" to products." But what really matters to CAT is what happens in China, and specifically the domestic housing sector, which as we showed last week, may have fizzled for Tier 1 cities, but is only getting started for Tier 2 through Tier 4.

Finally, the market is delighted with the results, and has sent the stock up over 4%, to a new all time high.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
mily's picture

VIX 8 handle? 9.13 LOD already

thesonandheir's picture

Meanwhile the dollar is getting clubbed like a baby seal AGAIN.

spastic_colon's picture

so they finally figured out a way to solve the rising market p/e problem........raise fake earnings

espirit's picture

CAT Crock.

Giveaway by .gov in return for AMZN & WMT stabeelitee.

Must.Have.Cheap.China.Junk.

Trade imbalance.

(they already gots our Au)

JRobby's picture

Sounds delusional? China debt level SHOULD be an indicator but I guess the world prints to infinity at this point?

Arnold's picture

Scrapping revenue?
Lotsa Yellow Iron sitting idle, possibly coming off lease.
.
http://www.cat.com/en_US/by-industry/governmental-defense/military/machi...

Anteater's picture

I have a friend who leases Chinese material movers to Defense contractors in Asia.

So he's at a lot of auctions, looking for clean, slightly used iron with low clock hours.

He found a Grove 115T crane. Just a beauty. Virtually new and at a steep discount!

Now I know my friend, and you can bet he called everyone he knew to borrow money.

A Grove is a goldmine for Defense contractors, and a low-hour Grove is pure profit.

So he gets ready to close the deal, and sends the S/N in to Grove to see if there's

been any recalls or purchased maintenance parts. Grove says there's no such S/N!

The Chinese had completely reverse-engineered an entire Grove crane, and put one

out at auction with perfect Grove decals, controls, you could not tell that it was fake.

Or, maybe Grove didn't want news getting out that it was selling at a steep discount?

Maybe the Grove rep flew over to China and bought the crane back for the company?

See,  you can never find solid ground in heavy iron sellers, or stock market brokers.

They will buy CAT at half price off of insiders, then sell it to you for full retail price.

roddy6667's picture

I seriously doubt that Chinese company would waste time and money making a copy of a Grove. They are too busy making excellent cranes for their own market.

MrJoy's picture

Biking in Costa Rica right now, lots of shiny newish Caterpillars cleaning up rivers and other low-end jobs where there used to be brown old machines doing the same a couple of years ago.
Seems like the newish CATs suddenly got affordable, even though the USD is strengthening towards local currency.
Somethings up.

Soph's picture

Debt level is irrelevant now. The thing to watch is whether or not China is starting another debt-fueld build to prop its economy. It worked for them the last time in 2010 --> 2013, and they definitely are a nation that sticks with what it knows. Anything commodity/infrastructure related exploded higher. Start looking to cover oil shorts, etc if that's what's happening.

The thing people here have to realize is that the doom and gloom of ZH, from a trading point of view, loses money hand over fist. If you'd started trading based on ZH propoganda that the world is ending and markets are doomed back in 2009, you'd be bankrupt a dozen times over by now.

Full Court Lugenpresse's picture

Fair point, but you have to remember that ZH has only been in operation for a single market half-cycle, so it's a pretty small sample size to be criticizing their angle. Someday sooner or later the other shoe will drop and I'm sure they will have plenty to say about it.

espirit's picture

Like maybe the FED buying CAT shares?

To da moon, Alice.

JRobby's picture

You speak many truths. It just does not matter anymore. The inflation outlook for the next 5 years should be interesting because the debt is not going to stop growing.

Mind numbing for me. Old school I guess.

tripletail's picture

Chinese PBoC ghost city construction, perhaps?

NoWayJose's picture

CAT has been doing so much better the last year - after the government raided their HQ during an investigation of tax avoidance! Amazing how years of paper losses (on which less tax is paid) have turned into profits!

KansasCrude's picture

Show us the numbers.  Sounds like gubmint propaganda and the new boss at Cat are singing from the same book as the home builders, car manufacturers, retail and online marketers....the all lie until the lie is so big its rediculous....the housing biz is still lying about inventory and sales.

http://investmentresearchdynamics.com/existing-home-sales-tank-this-summer-fact-vs-fiction/

junction's picture

Caterpillar will now have the money to pay off the government enforcers who will offer CAT a deferred prosecution agreement, a few billion due in back taxes plus paying $50 million or so to some former U.S. Attorney to monitor the company. 

roddy6667's picture

Where all these CAT machines in China? Down in coal mines? I seldom see them, and I am always looking.

Instead, I see, in this order,  Komatsu, Hyundai, Hitachi, Daewoo/Doosan, Sany, , Zoomlion, Longking, XCMG, LiuGong, Sumitomo, Volvo, Shantui, Chery, Putzmeister, and Schwing. Very few CAT machines, and only tracked excavators.

 

Shed Boy's picture

Yeah, I never saw a single CAT machine when I was there. They were building the new subway in Harbin when I was there, almost everything was Komatsu, Hitachi or Daewoo. I'm thinking this is just Caterpillar trying to "save face" and not admit they are a failing company.

roddy6667's picture

Very few Kobelco in my area (Qingdao), but I did see one working on the subway project.

CheapBastard's picture

...and CAT chainsaw sales in Switzerland hit an all time high also!

KansasCrude's picture

Uh not the same company as Catepillar...matter of fact owned by Husqvana a European company.  They sell the McCulloch CAT chainsaw

 

From McCulloch website

 

In 1999 McCulloch sold its European division to Husqvarna AB. Nine years later, Husqvarna also acquired the rights to the McCulloch brand on the North American market. Since then, McCulloch is a brand within the Husqvarna Group.

 

http://www.mcculloch.com/int/discover-mcculloch/history/

GodHelpAmerica's picture

Silk Road. Making China great again.

GodHelpAmerica's picture

Inflation is up up up from here...

John Law Lives's picture

"Finally, the market is delighted with the results, and has sent the stock up over 4%, to a new all time high."

The "market"?  Ha, ha, ha.  Thanks for the laugh.  What "market"...

FUBAR

Anteater's picture

?So Jared buys a couple of D-10s for their $4B hotel:casino deal in Red Jina,

and everyone is piling into Caterpillar?

Every morning just at dawn, I go shoot baskets under the airport flightpath.

With my new iPhone app, I can aim the camera at any plane flying right over

my head and the app will tell me where it's from. Every morning I go shoot.

 

Now to preface, back last Spring, there were so many planes coming in,

they had to use both runways, and there were foreign carriers that I had

never seen before, and air freight jumbos almost every ten minutes. You

remember jumbos when they're flying over your head at under 500 feet!

 

Today I was spellbound. Is it the weekend? Did I lose track of the days?

Four US commuter jets and three regional inland connectors. That's all.

ZERO air freight. ZERO foreign carriers. No jumbo cargos, no Air Bus.

And it's been this way all of July!


I wouldn't touch Caterpillar, or Amazon. Amazon is freaking desparate!

They're just about to the point of having flashing ads drop over your

shopping. "And you can buy these specials right now at the register!!"

I also wouldn't touch Tesla. It will take Musk ~three years to build a

reputation as junk version of the S, then all the S buyers will trade in

once the panache of being the only Tesla owner is gone. NASA will

be forced to cut back launches, as the uninterrupted hemorragh

continues at Pentagon. They don't know where the $Bs are going!!

 

Oh, I used to ride every day after work along a bike trail by the B&N

rail line. They had a long series of spurs where they would park any

unused cars. In 1998 I noticed the cars piling up, and by 1999, you

could literally ride for miles past parked tanker and gondola cars.

So I called my siblings with the news of the 'commodities freeze,'

and we did our due diligence, then entirely avoided the 1999 crash.

 

As easy as counting sheep in your sleep!

 

War is coming. That's the only way out now. War and pestilence

of uncontrolled Chinese pharmaceuticals and illegal prescriptions.

A friend of a friend came over Saturday to our barbecue, he's a

drug dealer selling opiods, scared the HELL out of everyone after

saying he's making $10,000 a week by 'making Franklin dance'.

 

That's the new Stoli shots or Krystal bottle. Now they burn a $100,

so everyone knows you're a big dealer. We covered the kids' eyes

as the $100 burned up in the fire. It's like that on Wall Street too.

It's like that at the Pentagon too. It's like that at the White House.

Burn, baby, burn!

silverer's picture

If there's a market, now you know where the market is. Certainly not the country that's spinning down the drain south of Canada.

robertocarlos's picture

Chinese construction boom? Too funny. Is this before or after India nukes them.

TheSilentMajority's picture

Sales(revenues) were actually below whisper numbers.

Expect a pullback once folks figure out the creative accounting used for the "earnings."

Pernicious Gold Phallusy's picture

They should put a label over the engine compartment saying "Unauthorized service or reverse-engineering voids warranty."