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Caterpillar (CAT) Gears Up For Q4 Earnings: What to Expect?

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Caterpillar Inc. CAT is likely to register top- and bottom-line growth when it reports fourth-quarter 2021 results on Jan 28, before the opening bell. The Zacks Consensus Estimate for quarterly earnings per share has remained unchanged over the past 30 days and is currently pegged at $2.23. The figure indicates an improvement of around 5% from the year-ago reported figure. The consensus mark for total sales stands at $13.3 billion, suggesting growth of 18.5% from the prior-year quarter.

Q3 Results & Surprise History

In the last reported quarter, Caterpillar delivered improved year-over-year performances in both its top and bottom line, driven by higher demand in end markets and across all geographies and strong operational performance. While sales missed the Zacks Consensus Estimate, earnings beat the same.

With the earnings beat in the last quarter, the mining and construction equipment behemoth maintained the streak of beating earnings estimates for four consecutive quarters. CAT has a trailing four-quarter earnings surprise of 30.2%, on average.

Caterpillar Inc. Price and EPS Surprise

Caterpillar Inc. Price and EPS Surprise
Caterpillar Inc. Price and EPS Surprise

Caterpillar Inc. price-eps-surprise | Caterpillar Inc. Quote

Factors to Note

The ongoing expansion in manufacturing activity has been reflecting on Caterpillar’s order book over the past few quarters. For the fourth quarter, total industrial production rose at an annual rate of 4%. Manufacturing output increased at an annual rate of 5%. This might have translated into improved order levels over the course of the fourth quarter for Caterpillar.

The company kicked off the fourth quarter with a solid backlog of $20.6 billion that was up by $2.2 billion sequentially and $7.2 billion on a year-over-year basis. The robust backlog and order flow in the fourth quarter may get reflected in Caterpillar’s top-line performance.

Supply chain headwinds, labor constraints currently faced by the industry, and inflated costs for raw materials (particularly steel) and freight services are likely to have weighed on the company’s margins in the quarter to be reported. Higher selling, general and administrative expenses due to increased incentive compensation and elevated R&D expenses to support the company’s growth strategy and new product development are expected to have weighed on margins.

Savings from Caterpillar’s ongoing cost control measures and restructuring actions might have negated some of these headwinds. This may get reflected in the company’s margins in the quarter to be reported.

Segment Expectations

For the Machinery, Energy & Transportation segment, which generates around 90% of the company’s total revenues, the Zacks Consensus Estimate for fourth-quarter 2021 revenues is pegged at $12.5 billion, suggesting an improvement of 18% from the prior-year quarter. The consensus mark for operating profit for the segment stands at $1,541 million, suggesting a year-over-year surge of 124% from the prior-year quarter.

The Zacks Consensus Estimate for the Resource Industries segment’s fourth-quarter external sales stands at $2,604 million, reflecting year-over-year growth of 19%. Through the quarter, prices for copper, aluminium, nickel and zinc were higher on a year-over-year basis, while iron, gold and silver were down. This might have translated into improved mining orders for the company across all regions. Improvement in heavy construction and quarry and aggregates, particularly in North America and the EAME, are expected to have contributed to the segment’s performance. The segment is anticipated to report an operating profit of $326 million, suggesting growth of 19% from the year-ago quarter.

The consensus mark for the Construction segment’s fourth-quarter external sales stands at $5,362 million, indicating growth of 19% from the year-ago quarter. In North America, demand from both residential and non-residential construction is likely to have aided the segment’s performance in the quarter to be reported. Increased construction activity may have supported machine demand in EAME and Latin America as well. However, considering that fourth-quarter sales in the Asia Pacific are pitted against strong excavator sales in China in the prior-year quarter, it is likely to have led to lower sales growth in the Asia Pacific. The Zacks Consensus Estimate for the Construction segment’s operating profit stands at $806 million, indicating growth of 28% from the prior-year quarter.

For the Energy & Transportation segment, the consensus mark for external sales stands at $5,133 million, indicating growth of 7% from the prior-year reported figure. Industrial is expected to have witnessed growth with activity strengthening across most applications. Improvement in power generation supported by data center activity, and rising sales in transportation, courtesy of an increase in rail services and international businesses may have contributed to sales in the fourth quarter. With several of the segment’s applications experiencing different levels of demand, the company has not been able to implement additional price increases. Higher material and freight costs increase remain a headwind for the segment. The SPM Oil & Gas division is likely to have acted as a modest drag on margins for the segment as it will take some time for the synergies to be realized. The Zacks Consensus Estimate for the Energy & Transportation segment’s operating profit is pegged at $769 million, suggesting a decline of 41% from the year-ago reported figure.

What Our Model Unveils

Our proven model conclusively predicts an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Caterpillar has an Earnings ESP of +10.18%.

Zacks Rank: It currently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance

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Zacks Investment Research

Image Source: Zacks Investment Research

Shares of the company have gained 14.3% in the past year, compared with the industry’s rally of 14%.

Other Stocks Poised to Beat Earnings Estimates

Here are some other Industrial Product stocks, which you may consider as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming releases:

UFP Technologies UFPT has an Earnings ESP of +8.77% and a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings for the fourth quarter of 2021 indicates year-over-year growth of 3.6%.

Shares of UFP Technologies have gained 47% over the past year. Over the last four quarters, UFPT’s earnings beat estimates in three of the trailing four quarters and missed once, the average surprise being 22.9%.

Sealed Air Corporation SEE currently has an Earnings ESP of +1.75% and a Zacks Rank of 2. The Zacks Consensus Estimate for the company’s earnings for the fourth quarter of 2021 indicates year-over-year growth of 28.1%.

Sealed Air’s shares have gained 49.5% over the past year. SEE’s earnings topped the consensus mark in three of the trailing four quarters and missed once, the average surprise being 6.5%.

Ingersoll Rand IR has an Earnings ESP of +7.44% and a Zacks Rank #3. The Zacks Consensus Estimate for the company’s earnings for the fourth quarter of 2021 suggests a year-over-year growth of 15%.

Shares of Ingersoll Rand have gained 29% over the past year. IR earnings topped the consensus mark in each of the trailing four quarters, the average surprise being 19.8%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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Caterpillar Inc. (CAT) : Free Stock Analysis Report

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