Caterpillar Tops 2Q18 Estimates, Raises FY18 EPS View

Caterpillar Tops 2Q18 Estimates, Raises FY18 EPS View
July 31, 2018


Earth moving equipment manufacturer Caterpillar Inc. (NYSE: CAT) defied slow down expectations to post better than anticipated fiscal 2018 second quarter earnings and revenue. The company also raised its FY18 profit outlook while saying that it would significantly offset the profit-hit by tariffs by increasing the prices of its products. Therefore, on the basis of details discussed below, we expect the stock of Caterpillar, which closed at $139.75, to rally further in the days to come.

Peoria, Illinois-based Caterpillar reported 2Q18 revenues of $14 billion, up 24% from $11.30 billion in the similar period last year. The company reported second-quarter GAAP earnings of $1.71 billion, or 2.82 per share, compared with $802 million, or $1.35 per share in the prior-year period. Excluding restructuring costs, adjusted earnings for the recent quarter increased to $2.97 per share, from $1.49 per share in the corresponding quarter last year. The Zacks analysts’ had expected earnings of $2.68 per share on revenues of $13.772 billion.

Segment wise performance is as follows:

  • Construction Industries – $6.172 billion, up 24% from $4.959 billion in 2Q17.
  • Resource Industries – $2.526 billion, an increase of 38% from $1.836 billion in 2Q17.
  • Energy & Transportation – $5.724 billion representing a growth of 20% on y-o-y basis.
  • Others – $124 million, a decline of 10% from last year.
  • Financial Products – $829 million indicating an increase of 7% from $776 million in the similar quarter last year.

At the end of second-quarter, Caterpillar had an order backlog of $17.70 billion, almost flat when compared with the previous quarter, but $2.90 billion higher compared to the similar quarter of 2017. Caterpillar stated that gains in energy and transportation orders offset declines in construction orders.

Despite rising costs due to tariffs imposed by the EU and China, Caterpillar raised its FY18 earnings outlook to a range of between $10.50 and $11.50 per share, from $9.75 to $10.75 per share issued earlier. The company expects the additional tariffs to increase material costs by $100 million to $200 million in the second half of 2018. However, Caterpillar is confident of offsetting the costs by increasing the price of its products.

The company repurchased $750 million of its common stock in the March-June period and expects to buy back at the same phase for the rest of the year. Caterpillar also raised its quarterly dividend by 10% to $0.86 per share, payable on August 20, 2018. Therefore, strong earnings, upwardly revised FY18 profit view and quarterly dividend hike is expected to turn Caterpillar bullish.

The stock has broken its major resistance at 139. This level is now expected to act as a major support. Both MACD and money flow indicator are rising. Therefore, the strong momentum is expected to keep the stock bullish in the short-term.

GBPNZD - Technical Analysis - 31st July 2018

To gain from the prevailing uptrend, we are considering investing in a call option, which is valid for a period of one week. We may use our surplus money to purchase a call option from a credible binary broker only if the stock is trading near $140 in the NYSE.

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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