Why Caterpillar Is Getting Bulldozed After Earnings

Caterpillar Inc. (NYSE: CAT) reported third-quarter 2018 results before markets opened Tuesday. The heavy equipment firm posted adjusted diluted earnings per share (EPS) of $2.86 on revenues of $13.5 billion. In the same period a year ago, the company reported adjusted EPS of $1.95 on revenues of $11.4 billion. Third-quarter results also compare to consensus estimates for EPS of $2.85 and $13.29 billion in revenues.

Cat lifted its outlook for GAAP EPS from a prior range of $10.50 to $11.50 to a new one of $10.65 to $11.65 but left its adjusted EPS guidance unchanged at $11.00 to $12.00. The adjusted estimate excludes approximately $400 million in restructuring and a $95 million tax benefit.

At the end of the third quarter, Cat’s order backlog totaled about $17.3 billion. This represents a sequential decrease of about $400 million. Year over year, the backlog is up by $1.9 billion.

The company also noted that it expects pricing strength, operational excellence and cost discipline in the fourth quarter “to more than offset higher material and freight costs, including tariffs.”

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Cat’s third-quarter numbers were fine, but the outlook is suspect. Order backlog is down slightly, prices are going up and the supply chain is not operating smoothly. Separately none is a very big deal, but taken as a group with today’s mood, even small things get magnified.

Operating profit rose from $1.51 billion a year ago to $2.14 billion, due primarily to higher sales volume and better price realizations. Higher volume accounted for $793 million of the increase and higher prices contributed an additional $155 million. Manufacturing costs rose year over year by $205 million, which Cat attributed to increased material costs, primarily in steel prices and tariffs and higher freight costs due to supply chain inefficiencies.

CEO Jim Umpleby said:

This was the best third-quarter profit per share in our company’s history. Our global team continues to do excellent work focusing on our customers’ success and executing our strategy for profitable growth.

Analysts have a current estimate for fourth-quarter revenues of $14.37 billion and EPS at $2.99. For the full year, the consensus estimates called for EPS of $11.66 and sales of $54.43 billion.

Cat is one reason the Dow traded down nearly 400 points in Tuesday’s premarket. Shares of the industrial firm traded down nearly 7% at $119.95, after closing Monday at $128.71. The stock’s 52-week trading range is $128.66 to $173.24, and that low was posted yesterday. The 12-month price target as of last night’s close was $167.86.

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