Caterpillar Plunges, Wiping Out 5% Gain After Surprising Guidance

It was supposed to be Caterpillar's day.

Early this morning, the CAT reported another set of blowout numbers, with Q1 EPS of $2.82 on Exp. $2.11, on revenue of $12.90, also smashing estimates of $12.07BN. The company's commentary was stellar, seeing growth across all verticals:

  • Construction: "expects broad-based growth in all regions in 2018, with the biggest drivers being strength for construction activity in North America and infrastructure development in China"
  • Mining: "global economic conditions and favorable commodity price levels will drive miners to increase capital expenditures in 2018 for both equipment replacement cycles and expansions"
  • Energy: "continued strong demand for reciprocating engines for well servicing and gas compression applications in North America. The current turbines backlog remains healthy in support of the midstream Oil and Gas business"

And sure enough, the market rewarded the stock by sending it 5% higher out of the gate, and pushing the Dow Jones higher.

The sellside rushed to gush about the company's stellar, if backward looking, results, without even bothering to listen to the conference call, such as this brave Citi analyst did.

Commentators, such as Bloomberg's markets live team, likewise quickly jumped on the bandwagon, praising CAT's "superb" earnings as the only thing that matters today, and supposedly confirming the strength of the equity market.

Well... Oops, because just a few minutes later the narrative suffered a spectacular collapse.

Recall, that first overnight the company reported retail sales numbers that showed an unexpected reversal in growth across all geographic regions, with the all important Asia/Pacific region sliding from up 51% in January to just 31% in March.

But it was the ominous guidance that the company gave on the 11am conference call, that slammed the stocks, after management said that Q1 was Caterpillar's "high water mark" for the year, and also warned that it expects resource industries margins to drop from first quarter.

Translation: the collapse in the Chinese credit impulse which we most recently showed last month, has finally caught up with the broader economy, and is now spilling over across the Pacific.

As a result, after surging as high as $161 early int he morning, CAT stock has tumbled back in the red, and is down nearly $15 from session highs.