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Caterpillar (CAT) Tops Q2 Earnings & Revenues, Raises View

Caterpillar Inc. CAT has delivered another upbeat quarter with adjusted earnings per share of $1.49 in second-quarter 2017, logging a 37% improvement year over year and also ahead of the Zacks Consensus Estimate of $1.26. The better-than-expected results were driven by the company’s disciplined cost-control efforts. Additionally, its shares advanced 4.54% in pre-market trading, following the release.

Including one-time items such as restructuring costs and a gain on the sale of an equity investment in IronPlanet, Caterpillar reported earnings per share of $1.35 in the quarter, up 45% from 93 cents in the prior-year quarter.

Revenues

Revenues improved 9.6% year over year to $11.3 billion in the quarter, surpassing the Zacks Consensus Estimate of $10.9 billion. Favorable price realization and higher sales volume, with most significant increase witnessed in Construction Industries owing to higher end-user demand for construction equipment led to the improvement.
 
Caterpillar witnessed a 25% rise in Asia Pacific driven by increase in construction equipment sales in China resulting from increased infrastructure and residential investment. Revenues increased 7% in North America on the back of increased demand for aftermarket parts and construction equipment, partially offset by the unfavorable impact of changes in dealer inventories. Sales in Latin America rose 20% due to stabilizing economic conditions in several countries in the region that led to improved end-user demand. Sales in EAME were flat.
Costs & Operating Profit

In the reported quarter, cost of sales increased 4.7% year over year to $7.8 billion. Gross profit rose 22% to $3.6 billion. Selling, general and administrative (SG&A) expenses increased 15% to $1.29 billion. Research and development (R&D) expenses declined 3% year over year to $453 million.

Adjusted operating profit improved 37% year over year to $1.82 billion owing to higher sales volume, favorable price realization and favorable mix of products that were offset by higher period costs.

Caterpillar, Inc. Price, Consensus and EPS Surprise
 

Caterpillar, Inc. Price, Consensus and EPS Surprise | Caterpillar, Inc. Quote

Segment Results

Machinery and Energy & Transportation (ME&T) sales increased 10.3% year over year to $10.6 billion. Sales of Energy & Transportation gained 5%, owing to higher sales of aftermarket parts for reciprocating engines. Sales at Resource Industries improved 21% due to higher sales volume for aftermarket parts and the favorable impact of changes in dealer inventories. Construction Industries sales rose 11% driven by higher sales volume.

The ME&T segment reported an operating profit of $1.15 billion, a 70% jump from the year-ago quarter. At the Energy & Transportation segment, operating profit improved 16% due to higher sales volume and lower variable manufacturing costs, partially offset by higher period costs. The Resource Industries reported operating profit in the quarter compared with the loss incurred in the prior-year quarter thanks to higher sales volume and lower period costs. Construction Industries’ profit surged 64% due to favorable price realization and higher sales volume, including a favorable mix of products.

Financial Products’ revenues inched up 2% to $776 million. Financial Products' profit was $191 million in the quarter up from $202 million in the prior-year quarter.

Financial Position

Caterpillar ended the second quarter with cash and short-term investments of $10.2 billion, up from $7.17 billion at 2016 end. Total debt-to-capital ratio was 73% at the second-quarter end, lower than 74% as of 2016 end. The debt-to-capital ratio at ME&T was 38.6% as of Jun 30, 2017, lower than 41.7% as of Dec 31, 2016, and within the company’s target range of 30–45%.

Total cash flow from operating activities in the first half was $3.92 billion, compared with $2.84 billion in the prior-year comparable period. Operating cash flow at ME&T soared to $2.03 billion in the quarter from $1.168 billion in the prior-year quarter.

Backlog

At the end of second-quarter 2017, Caterpillar’s backlog was at $14.8 billion, flat sequentially. On a year-over-year basis, order backlog improved by about $3 billion driven by improvement across all segments, particularly in Construction and Resource Industries.

Guidance

Given the upbeat first-half performance, improved order activity and disciplined cost control, Caterpillar has hiked revenue guidance to the range of $42–$44 billion from the prior range of $38–$41 billion.

The company now projects earnings per share of $5.00 per share compared with previous guidance of $3.75 per share. In 2017, restructuring costs will be around $1.2 billion.



In the past one year, the Caterpillar stock has outperformed the industry it belongs to. The company has delivered a return of 42%, while the industry gained 41.2%.

Zacks Rank & Other Key Picks

Caterpillar currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks worth considering in the same sector are AGCO Corporation AGCO, Terex Corporation TEX and Apogee Enterprise, Inc. APOG. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. Terex generated an outstanding average positive earnings surprise of 122.61% in the past four quarters, while Apogee has an average positive earnings surprise of 3.41% in the last four quarters.

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