Will Caterpillar (CAT) Miss Earnings Estimates?

Zacks Equity Research
October 22, 2013

Caterpillar Inc. (CAT) is set to report third quarter 2013 results on Oct 23. The company had delivered a negative earnings surprise of 15.2% in the second quarter. Let’s see how things are shaping up for this announcement.

Factors This Past Quarter

Caterpillar’s second-quarter revenues declined 16% year over year to $14.6 billion, while earnings per share slumped 43% to $1.45. The dismal results were due to reduced mining demand and more-than- anticipated decline in dealer machine inventory. The company has delivered a negative earnings surprise in all the past four quarters, with an average of -6.96%.

Due to continued dealer machine inventory reductions during 2013, Caterpillar trimmed its sales outlook to a range of $56 to $58 billion from the previous $57 to $61 billion. Caterpillar expects dealers to reduce inventory by about $3.5 billion in 2013. Caterpillar now expects to earn $6.50 per share in 2013, down from previous earnings projection of $7.00 per share.

Caterpillar’s sales declined 10% for the three months ending Aug 2013 following a 9% dip in July. With this, the construction and mining equipment behemoth reported its ninth consecutive month of sales decline.

Earnings Whispers?

Our proven model does not conclusively show that Caterpillar will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP  and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  The Most Accurate estimate stands at $1.59, while the Zacks Consensus Estimate is higher at $1.68. That is a difference of -5.36%.

Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

AGCO Corporation (AGCO), Earnings ESP of +0.78% and Zacks Rank #2 (Buy).

Ingersoll-Rand Plc (IR), Earnings ESP of +8.70% and Zacks Rank #2 (Buy).   

General Electric Company (GE) Earnings ESP of +1.85% and Zacks Rank #3 (Hold).  

Read the Full Research Report on AGCO
Read the Full Research Report on CAT
Read the Full Research Report on GE
Read the Full Research Report on IR

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