Caterpillar Slides On Lack Of Guidance Despite Revenue, EPS Beats

Industrial giant Caterpillar dropped on on Tuesday after the company reported lower Q3 earnings as equipment sales fell across all three primary segments. The heavy equipment maker whose stock price had nearly doubled from the March lows on expectations of a V-shaped recovery and massive stimulus...

... reported adjusted Q3 profit of $1.34 per share, down 50% compared with $2.66 per share a year ago, but better than the $1.13 expected. The company also beat on revenue, reporting $9.88BN, down 23% Y/Y, but above the $9.19BN consensus estimate.

Despite the sharp decline in Y/Y results, the company said it sees "positive signs in certain industries and geographies" while failing to give reassurance that the worst of the hit from the coronavirus pandemic is behind the heavy-equipment maker, and refusing to provide guidance.

The Deerfield, Illinois-based company suspended its earnings forecast earlier this year because of uncertainty stemming from the coronavirus. The only hint of an outlook came in presentation slides, in which Caterpillar said it sees less of a decline in end-user demand in  the fourth quarter than in the third, and that operating margins should improve. The company also said that dealers inventories are being run down more quickly, expected to decline by $2.5 billion for the full year, which should point to better sales going forward.

As Bloomberg notes, CAT "is typically seen as a bellwether for the economy, so analysts looking for hints as to how the recovery from the pandemic is progressing were likely disappointed."

Some more details from Q3:

  • 3Q financial revenue $653 million, estimate $709.0 million
  • 3Q Financial Products segment operating income $127 million, -47% y/y, estimate $156.1 million
  • 3Q Machinery, Energy & Transportation segment revenue $9.23 billion, estimate $9.19 billion
  • 3Q Machinery, Energy & Transportation segment operating income $925 million, -51% y/y, estimate $845.2 million

Looking ahead:

  • Sees 4Q Less Decline in End-User Demand Than 3Q
  • Sees Dealers to Cut Inventory Levels ~$700M in 4Q, about $2.5B full year
  • Sees 4Q About $100M of Restructuring Expense

Separately, Caterpillar, which has been cutting costs to blunt the impact of still-sluggish orders in energy and mining, said machine sales fell 20% in October on a rolling three-month basis, unchanged on a Y/Y basis since July.

Despite the depressed sales, there was some silver lining in Caterpillar's presentation slides, where the company’s order backlog increased by $500 million in the third quarter from the previous three months, after dropping $1.2 billion in the previous quarter.

As Bloomberg notes, the report comes as a resurgent virus hampers efforts to reopen economies, renewing concerns over the global demand outlook. Caterpillar was among the best-performing stocks the past few months on bets that the worst of the pandemic hit was behind the industrial bellwether.

"We’re encouraged by positive signs in certain industries and geographies," Caterpillar Chief Executive Officer Jim Umpleby said in the a statement. “We’re executing our strategy and are ready to respond quickly to changing market conditions.”

Caterpillar CFO Bonfield said there’s strength in their sales to China overall, particularly in 10-ton or above excavators. These excavator sales in China are something investors pay close attention to, given that they act as a sort of proxy as to how much construction is going on in the country.

Yet despite the favorable spin, the lack of blowout earnings for the company which had priced in more than perfection and a V-shaped recovery, saw its stock drop premarket amid concerns that a global second (or third) wave of infections would cripple demand for heavy industrial equipment.