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Caterpillar (CAT) Tops Q1 Earnings Estimates, Hikes '19 View

Zacks Equity Research

Caterpillar Inc. CAT delivered adjusted earnings per share of $2.94 in first-quarter 2019, surpassing the Zacks Consensus Estimate of $2.84. The figure improved 4% year over year driven by robust top-line performance despite higher manufacturing costs.
 
Including one-time items, Caterpillar’s earnings per share came in at $3.25 – a record for the first quarter. The figure marked an improvement of 19% over $2.74 in the prior-year quarter.

Caterpillar Inc. Price, Consensus and EPS Surprise

 

Caterpillar Inc. Price, Consensus and EPS Surprise

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

Revenues Beat Estimates

Revenues improved 5% year over year to $13.5 billion in the quarter under review, outpacing the Zacks Consensus Estimate of $13.4 billion. Sales increased 9%, 8% and 7% in Asia Pacific, Latin America and North America, respectively. EAME was the only region to witness a decline of 6% in revenues.
 
Higher Sales Lead to Improved Profits


In fourth-quarter, cost of sales increased 5% year over year to $9 billion on higher manufacturing costs, due to higher variable labor and burden, including freight costs, and material costs, including tariffs. Gross profit advanced 4% to $4.46 billion.
 
Selling, general and administrative (SG&A) expenses increased 3.4% to $1.3 billion. Research and development (R&D) expenses went down 1.8% year over year to $435 million. Operating profit came in at $2.2 billion, an improvement from the prior-year quarter figure of $2.1 billion.
 
Resource Industries & Construction Deliver Growth
 

Machinery and Energy & Transportation (ME&T) sales rose 5% year over year to $12.7 billion. Sales of Energy & Transportation remained flat at $5.2 billion from the prior-year quarter, as favorable price realization and higher sales volumes were offset by unfavorable currency impact owing to stronger U.S. dollar. Sales at Resource Industries improved 18% year over year to $2.7 billion aided by higher equipment demand and favorable price realization and services. Construction Industries sales rose 3% year over year to $5.9 billion on the back of higher sales volume for construction equipment.
 
The ME&T segment delivered operating profit of $2.1 billion, an improvement of 5% from the year-ago quarter. At the Energy & Transportation segment, operating profit declined 4% to $838 million. Higher sales volume was offset by rising manufacturing costs, including freight costs, increasing warranty expense and slightly higher labor costs.
 
The Resource Industries reported operating profit of $576 million in the first quarter, a surge of 52% from the prior-year quarter thanks to higher sales volume and favorable price realization. However, higher material and freight costs, and increased warranty expenses dented profits. Construction Industries’ profit dropped 3% to $1,085 million due to higher manufacturing costs, partially offset by favorable price realization.
 
Financial Products’ revenues went up 5% to $742 million. Financial Products' profits were $165 million in the reported quarter, up 19% from $139 million in the prior-year quarter.
 
Cash Position
 
Caterpillar ended first quarter 2019 with cash and short-term investments of $7.1 billion, down from $7.9 billion at 2018 end. In the reported quarter, ME&T operating cash flow was $860 million. During the first quarter of 2019, the company repurchased $751 million of its common stock and made dividend payments of $494 million.

Backlog
 
At the end of the first quarter of 2019, Caterpillar’s backlog was at $16.9 billion, a sequential improvement of $300 million aided by increase in Energy & Transportation and Construction Industries, partially offset by a lower backlog at Resource Industries.
 
Guidance Raised
 
For 2019, Caterpillar expects earnings per share to range between $12.06 and $13.06, up from the prior range of $11.75 to $12.75. This is due to 31 cents per share discrete tax benefit related to U.S. tax reform as a result of final regulations recently issued by the U.S. Treasury. The mid-point of the guidance depicts year-over-year growth of 12% over the adjusted earnings per share of $11.22 in fiscal 2018.
 
Price Performance


Over the past year, Caterpillar stock has dropped 1.6%, compared with the industry’s decline of 2.2%.
 
Zacks Rank & Stocks to Consider
 
Caterpillar currently carries a Zacks Rank #3 (Hold).
 
Some better-ranked stocks in the Industrial Products sector are DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and DXP Enterprises, Inc. DXPE, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 77.3% for the ongoing year. The company’s shares have soared 128.6% in the past year.

Lawson Products has an expected earnings growth rate of a whopping 102.5% for the current year. The stock has appreciated 33.4% in a year’s time.

DXP Enterprises has a projected earnings growth rate of 21.6% for 2019. The company’s shares have gained 21.4%, over the past year.

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