Caterpillar Beats 2Q17 Estimates, Raises FY17 View

Caterpillar Beats 2Q17 Estimates, Raises FY17 View
August 1, 2017

Last week, mining and earth moving equipment manufacturer Caterpillar Inc (NYSE: CAT) reported exceptional fiscal 2017 second-quarter results that beat analysts estimates by a wide margin. Following the results, the stock recorded a new yearly high of $114.90. The company also raised its FY17 EPS and revenue forecast. Thus, we anticipate the stock to forge new heights in the days to come.

The Pretoria, Illinois-based company reported approximately $1 billion increase in the second-quarter 2017 revenues to $11.331 billion, from $10.342 billion in the second-quarter of 2016. Net profit for 2Q17 was $802 million, or $1.35 per share, compared with $550 million, or $0.93 per share, in the year-ago period.

Excluding restructuring costs and sales of equity investment, the earnings in the quarter ended June 2017 were $1.49 per share, up from $1.09 per share in the prior-year’s similar quarter. The Thomson Reuters analysts’ estimates were $1.26 per share on revenues of $10.93 billion.

A recovery in demand from China and strong performance in the North American market enabled the world’s largest construction and mining equipment manufacturer to post 46% y-o-y increase in the net profit. In Particular, increase in demand for construction equipment in China increased 23% in the latest quarter. Similarly, an increase in the sales of mining and energy related equipment lifted North American revenues by 7%.

Looking ahead, Caterpillar now expects FY17 revenues of between $42 billion and $44 billion, up from the prior guidance range of $38 billion to $41 billion. Likewise, the full-year adjusted earnings guidance is now raised to $5 per share, from the prior outlook of $3.75 per share.

The company is in the process of downsizing to reduce operational costs. The restructuring process is now expected to cost $1.20 billion, instead of the prior estimate of $1.25 billion. At the end of second-quarter, Caterpillar has 94,800 employees, down from 100,000 last year.

Regarding the law enforcement raid by the US authorities for alleged tax evasion, Caterpillar stated that it is fully cooperating with the officials and has also roped in William Barr, the former US attorney General, to assist the company. Thus, a strong 2Q17 results, increase in demand for construction and mining equipment, and upwardly revised FY17 outlook has turned the stock bullish.

The stock is consolidating at 113 levels for the past one week. The accumulation/distribution indicator is rising, while the stochastic oscillator is in the bullish territory. So, we can expect another upswing in the stock of Caterpillar.

Caterpillar - Technical Analysis - 1st August 2017

To gain from the uptrend, we are planning to purchase a call option having an expiry period of one week. A price of about $114 is preferred while entering the trade.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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