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

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.