Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Caterpillar Plunges, Drags Dow Lower, After Missing Earnings, Slashing Guidance

Courtesy of ZeroHedge View original post here.

Once upon a time Caterpillar was considered the bellwether stock for the industrial sector. If that's still the case, then the world is on the verge of a recession as moments ago CAT reported dismal Q3 earnings while slashing its profit outlook, blaming deteriorating global growth.

CAT reported than in Q3 it earned:

  • EPS of $2.66, far below the $2.87 expected, and down 8% from a year ago.
  • Revenue of $12.76BN, a huge miss of the $13.41BN expected, and down 6% from a year ago

Sales decreased across the three primary segments and in all regions except for Latin America. A key reason for the Q3 revenue disaster, in addition to China of course, was the slowdown in shale.

  • The company announced that oil and gas-related revenue was down 9% in the quarter. Caterpillar cited the drop in reciprocating engines, units that are used in fracking. That decline was only partially offset by increased sales of turbines.
  • Meanwhile, sales at the key construction industries segment fell 7% y/y. The decrease was mainly due to lower sales volume driven by the impact from changes in dealer inventories, and was partially offset by higher end-user demand for construction equipment, the company says. Here China was to blame: "Sales in Asia/Pacific were lower across most of the region primarily due to lower demand in China, including unfavorable changes in dealer inventories, amid continued competitive pressures.”
  • Sales in CAT's mining equipment segment collapsed 12%, where CAT said that while commodity prices are generally supportive of reinvestment, mining customers are cautious due to economic uncertainty. Mining sales were also impacted by lower thermal coal prices, the company says.
  • Resource industries' total sales were $2.31 billion in the third quarter of 2019, a decrease of $327 million. Many analysts have looked at the mining segment as a business that would be growing as some other sales would be slowing.

The EPS disaster took place even as the company repurchased $1.2 billion of Caterpillar common stock, shrinking the total diluted shares by 7% to 561.2MM from 599.4MM a year ago.

According to CAT, Q3 revenue of $12.758 billion decreased $752 million, or 6%, compared with $13.510 billion a year ago, with the decline due to lower sales volume "driven by the unfavorable impact from changes in dealer inventories", which is another way of saying its customers are hunkering down and not buying heavy industrial machinery ahead of a recession. As CEO Jim Umpleby confirmed, "Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations."

Dealers decreased machine and engine inventories about $400 million during the third quarter of 2019, compared with an increase of about $800 million during the third quarter of 2018. Sales decreased across the three primary segments and in all regions except for Latin America, which was about flat.

One key reason for CAT's dismal quarter – the slowdown in fracking, as oil and gas-related revenue was down 9% in the quarter. Caterpillar cited the drop in reciprocating engines, units that are used in fracking. That decline was only partially offset by increased sales of turbines.

But while a one quarter miss could quickly be forgiven by the algos, the unprecedented 8% drop in CAT stock in the premarket – the biggest drop since January - was due to the company's unexpected collapse in guidance.

Specifically, Caterpillar lowered its FY EPS range to $10.90 to $11.40, which is now well below the low end of last quarter's estimate of $12.06 to $13.06. The revised guidance now assumes modestly lower sales in 2019, or in other words a continuation of the dismal trend observed in Q3.

What was the reason for the industrial bellwether taking a machete to its guidance: in a word, ongoing trade war.

"In the fourth quarter, we now expect end-user demand to be flat and dealers to make further inventory reductions due to global economic uncertainty,” said Umpleby, who did try to cushion the blow somewhat by noting that "Caterpillar’s improved lead times, along with these dealer inventory reductions, will enable us to respond quickly to positive or negative developments in the global economy in 2020. We are expanding our offerings and investing in services, including digital capabilities, to drive long-term profitable growth, while continuing to achieve our Investor Day targets for improved financial performance."

Also of note, CAT's outlook does not include a mark-to-market gain or loss for remeasurement of pension and other

postemployment benefit plans, which will be excluded from adjusted profit per share in the fourth quarter of 2019

along with any other material discrete items.

That however did not help the stock, which plunged as much as 6% after the report, its biggest drop since the start of the year, and has since stabilized about 4% lower…

… in the process hitting the broader Dow Jones Industrial Average where it is one of the most heavily-weighted members, and as Bloomberg notes, "Caterpillar's overall cautious commentary on global economic uncertainty may spark a broader sell-off in the industrial sector today, both in the U.S. and across the pond."


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!