Caterpillar Surges After Reporting Record Earnings, Boosting Guidance

Caterpillar Surges After Reporting Record Earnings, Boosting Guidance

When it comes to industrial bellwethers, few companies are as closely followed as Caterpillar, and in a time when traders are especially concerned for the outlook facing the industrial sector as a result of rising tariffs and escalating trade wars, many traders were especially interested in today’s CAT earnings. They had little to be worried about.

Moments ago, CAT reported Q2 earnings that beat on the top and bottom line:

  • Q2 Adjusted EPS of $2.97, vs $1.49 a year ago, beating exp. of $2.73 and matching the highest forecast.
  • Q2 Revenue of $14.0BN, vs $11.3BN a year ago, beating exp. of $13.98BN

Commenting on the result, CEO Jim Umpleby said that “Caterpillar delivered record second-quarter profit per share. Our team is doing a great job executing our strategy for profitable growth, focusing on operational excellence, expanded offerings and services.”

The company reported that during Q2, Machinery, Energy & Transportation (ME&T) operating cash flow was $2.1 billion, and the company repurchased $750 million of Caterpillar common stock. In June 2018, the board of directors approved an increase to the quarterly dividend of 10 percent to $0.86 per share. The second quarter of 2018 ended with an enterprise cash balance of $8.7 billion. In July 2018, the board of directors authorized the repurchase of up to $10.0 billion of Caterpillar common stock effective January 1, 2019.

But more important was the company’s surprisingly strong forecast:

CAT now sees full year 2018 EPS of $10.50 to $11.50, and adjusted EPS of $11.00 to $12.00.  This is an increase of 75 cents across the forecast range: the prior profit per share outlook range was $9.75 to $10.75, and the adjusted profit per share outlook range was $10.25 to $11.25.

“Based on outstanding results in the first half of the year and continued strength in many of our end markets, Caterpillar is again raising our profit outlook for 2018. We remain focused on operational excellence, cost discipline and investing for long-term profitable growth,” said CEO Jim Umpleby.

How about the all important question: how are tariffs impacting the company? It appears not that much, especially once costs are passed on through to customers:

Recently imposed tariffs are expected to impact material costs in the second half of the year by approximately $100 million to $200 million, and the company expects supply chain challenges to continue to pressure freight costs. However, the company intends to largely offset these impacts through announced mid-year price increases.

As a result of the strong earnings, CAT shares are up 3.6% in the premarket. And since the company makes up 3.8% of the Dow Jones, the CAT results have also pushed Dow futures off the unchanged line.

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